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Business Litigation Alert: "Confidential Postings: What to do when your company information goes public"

Social media has landed many people in hot water – whether it’s a celebrity apologizing for a tweet or an employee losing a job over inappropriate Facebook posts. However, when social media missteps involve the disclosure of confidential business information, the ramifications can be much more serious.

In May, the retail chain Francesca’s fired its CFO over his social-media posts, which included numerous disclosures of nonpublic company information through his Twitter account.

Days before the company filed its annual report, the former CFO tweeted, “Board meeting, Good numbers = Happy Board.” After this tweet, Francesca’s stock climbed 15% in the days leading up to its earnings announcement, giving rise to speculation that the information he disclosed about positive numbers moved the market.

Although Francesca’s fired the CFO upon learning of his posts, the company could still face potential SEC enforcement actions (along with the former CFO) , as companies are ultimately responsible for messages their executives convey.

There are two lessons here. First, companies should have appropriate social media policies in place, including policies for corporate officers and directors. Second, companies need to be up-to-date on how their corporate executives are using social media.

Having a policy in place will protect your company to some extent, but “we didn’t know,” is not an excuse that the SEC or other regulatory agencies will necessarily accept. Awareness of and careful monitoring of management’s postings on social media, however, can provide a more critical social media safeguard.


Jeff Elkin is a partner in the litigation section of Porter Hedges LLP.
He can be reached at 713.226.6617 or
jelkin@porterhedges.com.

This information is made available for educational purposes only and does not offer specific legal advice or create an attorney-client relationship with Porter Hedges. Do not use this information as a substitute for specific legal advice. Attorney advertising.

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