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Netflix draws SEC scrutiny over Facebook post

Hastings said Netflix typically released important information via investor letters, press releases and SEC filings.

Story highlights

  • SEC staff will present the case to commissioners, who will vote on whether or not to sue the company
  • Netflix CEO Reed Hastings Hastings put up a public Facebook post to more than 200,000 Facebook followers

Netflix and its chief executive Reed Hastings could face a civil action for a Facebook post that US Securities and Exchange Commission staff allege violated disclosure rules that require companies to release important information to all investors at the same time.

On July 3, Mr Hastings put up a public Facebook post to more than 200,000 Facebook followers, announcing that Netflix members had watched more than 1bn hours for the first time in June. The message has since received more than 250 likes and was shared more than 30 times, but the company did not issue a press release or file a document with the SEC about the news.

Netflix disclosed in a SEC filing on Thursday that the company and Mr Hastings had received a Wells notice from SEC staff, warning of the agency's intentions to file civil charges for violating Regulation Fair Disclosure. The rule bans the selective release of material information.

SEC staff will present the case to commissioners, who will vote on whether or not to sue the company. The case is likely to be watched by corporations that increasingly tap social media to disseminate information.

"SEC staff questions a Facebook post. Fascinating social media story," Mr Hastings said in a regulatory filing that he also posted to his Facebook page.

He argued that the company considered a post to more than 200,000 people as "very public", particularly because several of the executive's Facebook subscribers were reporters and bloggers. He added that while the company believed that the post was public, the 1bn viewing hours fact was not "material" to investors because it previously had signalled in a blog post that it was approaching the milestone. He said the company typically released important information via investor letters, press releases and SEC filings.

    Mr Hastings noted that while Netflix stock rose on the day of the post, the climb started before the posting occurred and likely was sparked by a positive Citigroup research report.

    The news comes amid an 18 month rollercoaster ride at the video rental company, initially spurred by the loss of a licensing deal with Starz followed by a botched rebranding and separation of its DVD business, which the company eventually abandoned.

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