Netflix, CEO face SEC threat over Facebook posting

, Bloomberg


Netflix Inc. and chief executive officer Reed Hastings said they may face a U.S. Securities and Exchange Commission civil claim over a July Facebook post that coincided with the stock's biggest gain in almost six weeks.

SEC staff alleges Netflix and its CEO violated rules governing selective disclosure, according to a company filing Thursday. The July 3 post by Hastings said Netflix viewing "exceeded 1 billion hours" of videos in June. The shares rose 6.2 percent that day.

The SEC action highlights the potential for legal trouble when company executives like Hastings, who has more than 200,000 Facebook fans, communicate with the public via social media. Regulation Fair Disclosure, aimed at preventing selective reporting, was passed by the SEC in 2000, before the use of social-media outlets like Facebook and Twitter exploded.

"This may be a case when the SEC needs to play catch-up," said Charley Moore, executive chairman and founder of San Francisco-based online legal services firm Rocket Lawyer. "Disclosing information to 200,000-plus Facebook users is basically the same as issuing a press release."

Regulation FD requires public disclosure, such as through a press release on a widely disseminated news or wire service, or by "any other non-exclusionary method" that provides broad public access. In June, Hastings had posted on his company blog that members were viewing "nearly a billion hours per month." With neither the June blog post nor the July Facebook post did he issue a press release or an 8-K filing with the SEC.

"We think the fact of 1 billion hours of viewing in June was not 'material' to investors, and we had blogged a few weeks before that we were serving nearly 1 billion hours per month," Hastings said in the filing. "We remain optimistic this can be cleared up quickly through the SEC's review process."

Netflix and Hastings, 52, each received a Wells Notice, which the SEC sends to a company or an individual after its staff has determined that sufficient wrongdoing has occurred to warrant civil claims being filed.

Though the SEC might argue Netflix and Hastings violated a rule by not issuing an 8-K filing with the Facebook post, that doesn't mean they committed a material infraction, Rocket Lawyer's Moore said.

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