Social Media Slip Ups: DraftKings' Costly SEC Lesson

As we celebrate World Investor Week, a global initiative dedicated to promoting investor education and protection, the recent SEC action against DraftKings serves as a timely word of caution on the critical importance of compliant communication with investors.

At a time where information (and misinformation) moves at lightning speed, education is the cornerstone of making informed investment decisions. Without equal access to vital information, the integrity of the market can be compromised, and that’s exactly what happened when DraftKings found itself in the SEC’s crosshairs.

On September 26, 2024, DraftKings Inc. was charged by the SEC for violating Regulation Fair Disclosure (Regulation FD). The company shared nonpublic information about its growth in existing markets on the CEO’s personal LinkedIn and X social media accounts disclosing details that weren’t "generally known or available to the public" at the time.

Neither of those channels had been publicly identified as Reg-FD compliant for information distribution. On top of that, the posts violated DraftKings’ social media and Reg FD policies, which prohibit sharing confidential or nonpublic information on social media. They also broke the "quiet period" rule, which restricts any discussion of financial results or performance in the lead-up to an earnings release. While the posts were taken down within 30 minutes, DraftKings delayed the proper disclosure of the incident for a whole week resulting in a $200,000 penalty.

The incident underscores the increasing complexities of modern corporate communication. Social media offers companies unlimited opportunities to engage with investors directly, and at the same time, poses significant risks if not managed carefully. DraftKings’ misstep demonstrates the importance of not only designating official communication channels but also ensuring that all employees and third-party partners understand and comply with regulatory requirements.

Transparency and compliance aren't just regulatory boxes to check, they’re essential to maintaining trust and fairness in the markets.