Deleted DraftKings CEO Tweet Sparks Question About SEC Disclosure Rule

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DraftKings reports second-quarter earnings Thursday, and a since-deleted tweet about company growth by company CEO Jason Robins in the days leading up to the call raised questions among some observers about its content and timing.

Robins took to Twitter on July 27 to say DraftKings expects “robust growth” even without new state launches because of its vintage state segment. That tweet was deleted about 30 minutes after it went live and DraftKings subsequently declined on multiple occasions to explain why:

“There’s massive potential for growth in new markets – but we’re still seeing really strong growth in existing states.

“Our 2018-2019 state vintage grew over 80% on the revenue basis year-over-year in Q1. With those numbers, we expect robust growth even without new states opening.”

Explaining SEC regulation in play

The timing of Robins’s tweet during what many companies define as so-called “quiet periods” prior to earnings reports raises questions about whether the since-deleted message runs afoul of regulation. While each company can determine its own quiet-period policy, Regulation FD encompasses all publicly traded outfits.

Regulation FD, or Fair Disclosure, states that any material nonpublic information must be available to everyone at the same time. Most companies take disclosure a step further by offering email alerts that can include an update for every SEC document filed.

Robins’s Twitter account has not been publicly identified as a place to find nonpublic material information.

The DraftKings earnings report will be released after trading closes Thursday with its conference call scheduled for 8:30 am EDT Friday. As of 3 pm ET Wednesday, DraftKings stock was trading at $30.45, down slightly from its opening price of $31.15.

Expert: DraftKings tweet is ‘problematic’

Duke law professor James Cox described Robins’s tweet to LSR as “problematic” because of the information it contained, even if DraftKings said publicly before that they expect the vintage state segment to continue growing.

While the information first became public in a previous investor presentation, there is a difference in saying segment growth is expected to continue on an earnings call, compared to making that statement when the quarter is over and the company has that sort of information with earnings due in a week, Cox said.

Cox is an expert in corporate and securities law, and “has published extensively in the areas of market regulation and corporate governance, and has testified before the U.S. House and Senate on insider trading, class actions, and market reform issues,” according to his biography.

SEC on social media as company site

Cox also provided an example of a similar situation.

In July 2012, then-Netflix CEO Reed Hastings took to Facebook to announce the company streamed more than 1 billion hours of content in June of that year. That was significant news, considering the company streamed 2 billion hours of content in the fourth quarter, and led to a 16% jump in the stock price by the end of the day.

The SEC decided in 2013 that a company can treat social media as a company page, but investors must be aware that information could come from the account.

“Moreover, we emphasize that the Commission’s 2008 Guidance, though largely focused on the use of web sites, is equally applicable to current and evolving social media channels of corporate communication. The 2008 Guidance explained that issuers must take steps sufficient to alert investors and the market to the channels it will use for the dissemination of material, nonpublic information.

“We believe that adherence to this guidance will help, with minimal burden, to assure compliance with Regulation FD and the fair and efficient operation of the market.”

Did DraftKings follow Regulation FD?

Multiple people with securities backgrounds either declined to comment or were not certain if what Robins did could constitute an SEC violation. None explicitly told LSR that the tweet did not violate regulations.

When contacted by LSR, SEC representatives would not address the tweet, saying the body does not comment on specific situations. When LSR posed the question to the SEC in a more generalized manner, a representative said it does not comment on hypotheticals.

LSR made repeated attempts over the past five days to offer DraftKings the opportunity to explain why Robins deleted the tweet and to represent its perspective about whether it met legal standards. A DraftKings representative first offered to connect LSR with its legal team to explain why the tweet was not a violation.

After LSR accepted the invitation, DraftKings never provided a legal representative and declined further opportunities to comment on the record.