Living in a Material World – Facebook Forgoes 8-K on Libra

Living in a Material World – Facebook Forgoes 8-K on Libra

The headlines around Facebook and chairman Mark Zuckerberg have not been glowing lately. Most recently, the social media giant took heat for its handling of a so-called “deepfake” video. Zuckerberg admitted last week that Facebook was too slow in flagging the altered video, which portrayed Rep. Nancy Pelosi (D-CA) slurring her words while criticizing President Trump. The misstep won’t assuage concerns about the role that Facebook, which was embroiled in the 2016 election controversy, will play in the 2020 cycle.

It also isn’t stopping the company from courting more regulatory attention. Indeed, Facebook just announced a plan to enter the murky world of cryptocurrency.

The social media giant isn’t going it alone in launching the new digital currency Libra. Instead, Facebook is playing a leading role in the Libra Association, an organization based in Switzerland whose membership also includes Uber, Visa and Mastercard. The goal of the Libra Association: To erect “a new decentralized blockchain, a low-volatility cryptocurrency, and a smart contract platform that together aim to create a new opportunity for responsible financial services innovation.”

Under all the marketing-speak, Libra is a digital currency (there are arguments for and against calling it a “cryptocurrency”) pegged to several government-backed currencies and securities. Consumers will maintain digital wallets with their Libra currency, which can be used anywhere in the world that accepts Libra. When you get into the weeds on Libra, things get complicated fast, but here’s one fun fact that’s easy to understand: like Facebook, a digital currency with astronomical aspirations is eerily reminiscent of an idea that the Winklevoss twins had. (They call their currency exchange Gemini). The more things change, the more they stay the same.

In any case, Facebook may be driving the Libra bus for now, but the company is positioning it as a communal effort. Perhaps that’s why Facebook isn’t making the disclosures you might expect if they had just single-handedly created a currency that is really going to replace the dollar?

When public companies have significant news to share between quarterly reports, of course, they generally file a Form 8-K. And per the SEC’s instructions, those Form 8-Ks are expected to be filed within four business days (unless otherwise stated) of the triggering event. To wit, The Boeing Co. filed an 8-K on June 26 disclosing under Item 8.01 that the Federal Aviation Administration just asked it to make software changes to the 737 MAX planes that were grounded in March. Under this item, companies can voluntarily report not only “material” events, but also inform the market of other matters that may be of interest.

The four-business-day mark has come and gone since the Libra announcement, and Facebook has yet to file an 8-K regarding the news. Presumably, that means one isn’t coming. Perhaps this is a bit of modesty on Facebook’s part, downplaying the potentially revolutionary implications of the new currency. But, more likely, it is a calculated decision based on a careful determination that the Libra initiative doesn’t rise to the level of the SEC’s “materiality” standard (“substantial likelihood that a reasonable investor would attach importance in determining whether to purchase the security registered.”)

With a market capitalization of $551 billion, Facebook could certainly make a sound argument for eschewing Form 8-K disclosure. The utility PG&E Corp. serves as a recent cautionary tale of the potential perils of such a judgment call, however. It revealed that the SEC is looking into its disclosures (or lack thereof) related to the 2017 and 2018 Northern California wildfires. The “materiality” standard can be quite mysterious, but then again, so can Facebook. As questions are mounting about the regulatory risks and policy issues posed by the crypto venture, Facebook may eventually find that the decision not to file an 8-K was one of the easiest compliance calls they had to make around their new currency.

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