Financial regulator slams Netflix chief for Facebook posting

Joseph O'Halloran | 07-12-2012

The US Securities And Exchange Commission has criticised Netflix CEO Reed Hastings over his use of Facebook to disclose subscriber uptake information in July 2012.

The SEC has issued both the over-the-top (OTT) leader and Hastings himself with a 'Wells Notice' indicating its intent to institute a cease and desist proceeding and/or bring a civil injunctive action against each party for “violations” of Regulation Fair Disclosure.

After his posting to the then just over 200,00 Facebook followers that customers watched a billion hours of video in June 2012, Netflix shares hit a 52-week high, surging up 19% to $81.85 over a two-day period. However, contrary to SEC regulations, Netflix did not issue a press release nor did it file a related document with the SEC as required under Section 13(a) of the Securities Exchange Act and Rules 13a-11 and 13a-15, designed to ensure that individual investors have equal access to information as large institutional investors, by prohibiting selective disclosure of material information.

Using the social network that landed him in trouble to reply to the SEC’s concerns, Hastings said that the company used blogging and social media, including Facebook, to communicate effectively with the public and its members.

He argued: “We think posting to over 200,000 people is very public, especially because many of my subscribers are reporters and bloggers. Second, while we think my public Facebook post is public, we don’t currently use Facebook and other social media to get material information to investors; we usually get that information out in our extensive investor letters, press releases and SEC filings. We think the fact of one billion hours of viewing in June was not “material” to investors, and we had blogged a few weeks before that we were serving nearly one billion hours per month. Finally, while our stock rose the day of my public post, the increase started well before my mid-morning post was out, likely driven by the positive Citigroup research report the evening before.”

Hastings said he was optimistic that the case could be cleared up quickly through the SEC’s reviewprocess.