SEC Fines DraftKings $200K Over CEO’s Selective Disclosure

Did you know DraftKings recently faced a hefty fine over a social media mishap? The SEC charged DraftKings with violating federal regulations after their CEO’s posts revealed material information prematurely. Curious how this affects corporate communication strategies? Keep reading to uncover the implications of this regulatory breach and what it means for public companies.

SEC Charges DraftKings $200K for CEO’s Social Media Posts Violating Disclosure Regulations

The Securities and Exchange Commission (SEC) recently slapped DraftKings with a $200,000 fine for violating federal disclosure regulations through social media posts made by its CEO, Jason Robins. This case serves as a cautionary tale for public companies navigating the complexities of Regulation Fair Disclosure (Regulation FD) in the era of instant communication.

The Incident: How It Unfolded

On July 27, 2023, Jason Robins’ X (formerly Twitter) account, managed by DraftKings’ public relations firm, posted about the company experiencing “really strong growth” in states where it was already operating. A similar post appeared on Robins’ LinkedIn account. At that time, DraftKings had not yet officially disclosed its second-quarter financial results, nor had it publicly released the material information mentioned in these posts.

This premature disclosure raised immediate concerns since the posts revealed significant non-public information that could have influenced the market. While DraftKings acted quickly, taking down the posts shortly after they were published, they failed to make the same information equally accessible to all investors until their official Q2 earnings announcement a week later.

Why the SEC Stepped In

The SEC’s investigation concluded that DraftKings violated Section 13(a) of the Securities Exchange Act and Regulation Fair Disclosure (Regulation FD). These regulations require public companies to disclose material information in a manner that ensures equal access for all investors. Selectively sharing such information through social media channels, particularly before an official financial report, contravenes these federal rules.

John Dugan, Associate Director for Enforcement in the SEC’s Boston Regional Office, emphasized the importance of fair dissemination of material information: “Information about growth in sales as a public company can be extremely important to investors. It is essential that, when companies disseminate material, nonpublic information, they do so fairly to all investors.”

The Consequences and Settlement

DraftKings agreed to settle with the SEC without admitting or denying the findings. The company agreed to pay the $200,000 civil penalty and committed to additional regulatory compliance measures, including training for employees responsible for corporate communications. This settlement underscores the importance of understanding and adhering to Regulation FD, especially in an age where social media can easily become a platform for the inadvertent release of sensitive information.

The SEC also reminded companies that they can use social media outlets to announce key information. However, companies must first alert investors about which specific social media channels will be used for such communications to avoid any Regulation FD violations.

The Bigger Picture: Social Media and Corporate Communication

This incident highlights a growing challenge for public companies: navigating the fine line between timely communication and regulatory compliance in the digital era. Social media platforms like X and LinkedIn offer executives a direct line to their audience. However, they also pose risks if material information is disclosed selectively or prematurely.

To comply with SEC regulations, companies must ensure that information shared on social media is simultaneously made available to all investors through official channels. This case serves as a wake-up call, reinforcing that corporate leaders must exercise caution and have robust compliance policies governing their social media use.

The SEC’s $200K fine against DraftKings serves as a stark reminder of the importance of regulatory compliance in today’s digital communication landscape. While social media can be a powerful tool for corporate messaging, it must be used carefully to avoid the selective dissemination of material non-public information. DraftKings’ case emphasizes the need for public companies to establish clear communication policies and train executives on Regulation FD requirements. As social media continues to blur the lines of traditional disclosure, ensuring that all investors receive equal access to critical information remains a fundamental principle in upholding market integrity.