When the CEO of a publicly traded company posts a message on Facebook, Twitter or any social media network, it could be an illegal act, or also incur a civil lawsuit.
Take, for example, the case of Reed Hastings, CEO of Netflix Inc.
In December of 2012, a Security and Exchange Commission (SEC) filing cited Hastings and his company for allegedly violating fair disclosure rules in a July posting on Facebook. The SEC threatened to file a civil lawsuit against Netflix.
The posting in question hyped Netflix's streaming-subscriber growth, claiming that its viewing service for the month of June surpassed one billion hours for the first time ever.
As a result of Hasting's Facebook message, Netflix stock, which is traded on the NASDAQ, surged upward. Hasting's stock options also increased in value, topping out at $1.5 million in 2012.
Reacting to the SEC action, Hastings said, "...[It's] a fascinating social media story....Posting to over 200,000 people is very public, especially because many of my subscribers are reporters and bloggers."
Until this incident, Netflix typically dispatches material information to investors via SEC filings, press releases and letters to investors, according to Hastings.
"We think the fact of one billion hours of viewing in June was not 'material' to investors, and we had blogged a few weeks before that we were serving nearly one billion hours per month," Hastings said in a written statement.
"We remain optimistic this can be cleared up quickly through the SEC's review process," he said.
As more CEOs and senior management use social media for various business purposes – a growing trend – more problems like Hastings' are likely to occur, the majority of which will probably be inadvertent.
Why the increasing business use of social media by business? Social media offers immense potentialfor marketing, image-making, advertising, public relations efforts, customer relations, investor relations and a variety of other positive, beneficial activities. But it also carries potential risks, a caveat perfectly illustrated by the Hastings case.
The risks of social media are in some, but not all respects, similar to those of print media. But not all libel laws apply—issues of malice and negligence have not been definitively decided in the courts.
Insider trading issues, however, are clear. The transmission via social media of insider information about a publicly traded company is illegal. Using Facebook, Twitter, Pinterest or private blogs to transmit insider information to large numbers of people is a violation of law.
In one example of unethical use of social media, investors concealing their identities, entered chat rooms and touted a specific stock in an effort to convince people to buy it.
The hoped-for buying occurred, the stock went up in price, and the investors who hyped it sold their holdings at a nice profit.
As the use of social media becomes more widespread and more unethical or illegal activity occurs, increasing government oversight and restrictions are likely.
Government agencies have the power to subpoena social media accounts for investigative purposes and to determine who sent a certain message or messages. Anonymous postings are not protected by law, although the American Civil Liberties Union has objected to government access to social media, citing privacy issues.
As routine procedure now, the FBI monitors Facebook, Twitter and other social media for potential securities fraud, including insider trading.
But government may not be able to keep up with the latest advances in technology and social media to prevent their illegal misuse, according to April Brooks and David Chaves, agents working in the FBI's New York field office.
"I will tell you," said Brooks, "technology will play a huge part, social media, Twitter, any kind of technology that is new and doesn't exist today. If there is any way to exploit it, these individuals will exploit it," said Brooks in a Reuters TV interview.
Although social media may present opportunities for criminal acts, legitimate use of it by companies is expanding as the number of users increases. Smart CEOs, aware of the broad reach and power of social media, have authorized their firms to use it as a sales and public relations tool.
Many corporate executives have also posted messages under their own names to the vast unseen audience that regularly visits social media sites. CEOs also monitor sites like Facebook and Twitter anonymously, in search of customer feedback on products and services.
For example, John Krafcik, president of Hyundai USA, reportedly spends 90 minutes daily browsing through Facebook and Twitter looking for comments on his company's brands and products.
"Right now, social media is a wonderful opportunity for me to listen and really feel the pulse of what's going on," said Krafcik, who has not yet posted a social media message.
"But if I get out there in it myself, I want to make sure I can be committed to stay and deliver," he said. "And the time constraints are considerable."
Among the growing number of CEOs posting signed messages on social media is Brian Dunn, CEO of Best Buy. Dunn's Twitter account has about 5,000 followers.
"Best Buy's message has to be where people are, and today that means being on social networks," Dunn said. Without a presence in social media, according to Dunn, [Best Buy] "...risks not being in the conversation at all. Over time, I believe that can be fatal to a business."
Other notable CEOs and corporate executives who have embraced social media include:
Taje Jeff Joerres, head of Manpower. The Glendale, Wisconsin company is the world's biggest private employer. Joerres tweets, has a personal Facebook page and posts messages on domestic and international labor news.
David Sable is the top executive at Young & Rubicon, which is among the world's largest marketing-advertising firms. "Social media is an extension of social behavior, and social discourse is hugely important in business," he said. "That means the ROI [return on investment] is the highest in the world."
Even the CEO of the U.S.A., President Barack Obama, has used Facebook. A photo posted on Obama's official Facebook fan page after his re-election shows him hugging the first lady. The caption says, "Four more years." The photograph became the most "Liked" photo in Facebook's history.
As the trend to social networking continues, CEOs, corporate executives and company personnel would protect themselves and their employers by learning what is and is not acceptable as a tweet or Facebook posting, or a message on any of the other sites.
Social media experts and lawyers advise companies to draft clear, specific rules governing the use of social media. The National Federal of Independent Business has a model employee handbook with a section on social media.
There are legal and ethical dangers, but there are also immense potential payoffs.