by Jon Lewin on May 16, 2012
Houston-based clothing retailer Francesca’s announced Monday that it was firing CFO Gene Morphis because he had “improperly communicated company information through social media.” According to the Wall Street Journal, some of Morphis’ tweets moved Francesca’s stock. But the case of the fallen CFO ultimately says more about common sense than it does about social media.
It turns out that Morphis was tweeting non-public information about Francesca’s almost from the time of his appointment as CFO in October 2010. In November 2010, Morphis tweeted, “Draft S-1, pages of risks (sigh). I tell lawyers to add the risk that a meteor strikes earth, killing all life causing investors to lose.” A company prepares an S-1 registration statement when it is planning to go public, so any information about an S-1 is generally kept under wraps.
But his tweets did not start to move the stock until more recently. On March 7, the 63-year-old Morphis, using the handle @TheOldCFO, tweeted “Board meeting. Good numbers=Happy Board.” Francesca’s was not scheduled to release earnings until March 13. Morphis’ tweet helped boost the stock 15% to $26.78 in the days leading up to the official release of the earnings.
According to Amy Freed, a corporate governance practice partner at Hogan Lovells, the Securities and Exchange Commission “does not consider tweets to be public disclosure for the purposes of filing communications.”
While Morphis’ Twitter account does not have his name, his LinkedIn profile links to it and the Twitter account is linked to his personal blog. But while Morphis’ Facebook and Twitter pages were available for anybody to look at, Freed explained that “the SEC has taken the position that posting this information through a narrowly defined vehicle like Tweets are not public in the sense that all investors have the information at the same time,” said Freed. As a result, tweeting sensitive information results in an “uneven playing field.”
But whether or not one knows how the SEC defines tweets, one would think a CFO would know not to disclose potentially sensitive information in any format. If Morphis had no problem talking about Francesca’s financial dealings on Twitter, who’s to say he wasn’t doing so over dinner or on the golf course? Morphis’ inappropriate tweets ultimately say more about his failure to use common sense in discussing private work matters in any format than his inability to use social media without violating company policy.
As for Francesca’s, they are likely in the process of redefining company policy on employees’ private use of social media, if they have not done so already. But company executives need to reevaluate their own practices first. How could they miss the fact that their CFO was tweeting private information for a year and a half?
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Jon Lewin is a Feature Writer for the Compliance Exchange and Wall Street Job Report. He is also a columnist for the Faster Times and a blogger for Subway Squawkers. Lewin’s work has appeared in the New York Daily News, Huffington Post and Digital Innovation Gazette as well as the “Cambridge Companion to Baseball” and the Daily News history essay collection “Big Town Big Time.”