Since Elon Musk‘s infamous tweets in 2018 in connection with Tesla shares and the subsequent fraud suit filed by the SEC, it is clear that private social media channels are also subject to regulatory monitoring. The SEC now fined the U.S. company DraftKings $200,000 for selectively disclosing nonpublic information via the CEO’s social media accounts. This case highlights the importance of ensuring equal access to material information for all investors.
Key Points:
- The SEC charged the Boston-based gambling company DraftKings (website) with violating Regulation Fair Disclosure (FD) by selectively sharing nonpublic information.
- Posts on the CEO’s X (formerly Twitter) and LinkedIn accounts mentioned “really strong growth” before financial results were disclosed.
- DraftKings agreed to pay a $200,000 penalty and implement Regulation FD training.
Short Narrative:
The SEC has charged DraftKings Inc. with selectively disclosing material, nonpublic information through its CEO’s social media accounts, violating Regulation Fair Disclosure (FD). On July 27, 2023, posts on the CEO’s X and LinkedIn accounts revealed key information about the company’s growth in certain states before DraftKings publicly disclosed its second-quarter financial results. The posts were later removed, but DraftKings delayed a full public disclosure for seven days, breaching FD rules. DraftKings settled the charges, agreeing to pay a $200,000 fine and implement employee training on compliance with FD regulations.
Actionable Insight:
This case underscores the importance of ensuring that public companies share material information equally with all investors. Companies must adhere to Regulation FD and ensure that all communications, including those on social media, are in line with SEC rules.
The case of DraftKings is another example of the danger of social media communication of publicly traded companies and its executives and the risks of selectively sharing financial information. Even social media posts by executives are subject to disclosure regulations, and failing to communicate material information to all investors can result in significant penalties.
Call for Information:
If you have information about regulatory misconduct by a company or its executives, please share it with us via our secure whistleblower system, Whistle42.
