As long as companies alert investors about which social media outlet they plan to use in advance, they can use outlets like Facebook and Twitter to disclose key information, the Securities and Exchange Commission announced Tuesday.

The federal securities regulator also said it has decided not to pursue an enforcement action against Netflix and its chief executive, Reed Hastings, relating to a disclosure Hastings made on his personal Facebook page last year

As reported in an article published on on Monday (“Should Tweeting CEOs Be Muzzled Or Glorified?“), Hastings posted a Facebook entry in July 2012, telling his Facebook friends that Netflix had exceeded 1 billion monthly viewing hours for the first time during the month of June. Netflix shares jumped on the following trading day, and the SEC issued Wells Notices to the company and Hastings. The Wells Notices initiated a probe into possible violations of Regulation FD—a fair disclosure rule adopted in 2000.

Regulation FD essentially says that when public companies intentionally disclose material information about their business, they must disseminate the information broadly, publicly—and not selectively.

Explaining the decision not to pursue an enforcement action, the SEC said on Tuesday that it recognizes “there has been market uncertainty about the application of Regulation FD to social media,” opting to issue a “report of investigation” instead.

The report explains that “although every case must be evaluated on its own facts, disclosure of material, nonpublic information on the personal social media site of an individual corporate officer—without advance notice to investors that the site may be used for this purpose—is unlikely to qualify as an acceptable method of disclosure under the securities laws.”

“Personal social media sites of individuals employed by a public company would not ordinarily be assumed to be channels through which the company would disclose material corporate information,” the SEC said.

Still, the report says, “We do not wish to inhibit the content, form, or forum of any [issuer] disclosure….In fact, we encourage companies to seek out new forms of communication to better connect with shareholders.”

The SEC report points to guidance it issued in 2008 regarding the use of websites to make public disclosures and says the guidance is flexible enough to embrace social media.

“The 2008 Guidance explained that issuers must take steps sufficient to alert investors and the market to the channels [they] will use for the dissemination of material, nonpublic information,” the SEC said, explaining that the 2008 is “equally applicable” to evolving social media channels of communication.

Noting that the 2008 Guidance encourages issuers to include corporate website addresses in periodic reports and press releases, along with indications that the “company routinely posts important information on that website,” the SEC suggests similar guidance for social media platforms.

In particular, the report says that “disclosures on corporate websites identifying social media channels that will be used to disseminate material nonpublic information would give investors and the markets the opportunity to take the steps necessary to be in a position to receive important disclosures—e.g. subscribing, joining, registering, or reviewing that particular [social media] channel.”

In the press statement, George Canellos, Acting Director of the SEC’s Division of Enforcement, said, “Most social media are perfectly suitable methods for communicating with investors, but not if the access is restricted or if investors don’t know that’s where they need to turn to get the latest news.”

“One set of shareholders should not be able to get a jump on other shareholders,” he added.

The SEC said its latest report was intended to remind issuers that disclosures “to persons enumerated in Regulation FD,” such as shareholders and securities professionals, even when made to a broader group of recipients through social media, must be analyzed for compliance with the fair disclosure regulation. Being in compliance means that material nonpublic information is disseminated “in a manner reasonably designed to achieve effective broad and non-exclusionary distribution to the public.”

At the Professional Liability Underwriting Society D&O Symposium earlier this year, corporate governance and legal experts debated the other questions relating to social media disclosures, including whether companies that post positive news, as Hastings did, are also obligated to post negative news. Details of the debate are included in a separate Carrier Management article, “Should Tweeting CEOs Be Muzzled Or Glorified?”

Topics Legislation