TheCorporateCounsel.net

Yesterday, the SEC announced a settled enforcement proceeding against DraftKings arising out of the use of its CEO’s social media accounts to disseminate material non-public information. This excerpt from the SEC’s press release announcing the proceeding lays out the factual background of the case:

The order finds that, on July 27, 2023, at 5:52 p.m., DraftKings’ public relations firm published a post on the personal X account of the DraftKings CEO. The post, according to the order, stated that the company continued to see “really strong growth” in states where it was already operating. DraftKings’ public relations firm posted a similar statement that same day on the CEO’s LinkedIn account. At the time of the posts, DraftKings had not yet disclosed its second quarter 2023 financial results, nor had it otherwise publicly disclosed certain information contained in the posts.

Shortly after the public relations firm published the posts, it removed both posts at the request of DraftKings. According to the order, even though Regulation FD required DraftKings to promptly disclose the information to all investors after it was selectively disclosed to some, DraftKings did not disclose the information to the public until seven days later when it announced its financial earnings for the second quarter of 2023.

The SEC’s cease and desist order says that publication of these social media posts violated the company’s social media and Reg FD policies, which prohibited the use of social networks to disseminate MNPI and barred the company’s authorized spokespersons from discussing financial or operational results or guidance during the pre-earnings release “quiet period” specified in its Reg FD policy.

In addition to consenting, on a neither admit nor deny basis, to an order to cease and desist from future violations of Section 13(a) of the Exchange Act and Regulation FD thereunder, the company agreed to pay a $200,000 civil penalty and comply with certain undertakings, including Reg FD training for employees who have corporate communications responsibilities.

– John Jenkins