By Ryan Lawler
As if Netflix didn’t have enough problems: The company announced today that it is being investigated by the SEC for a post that CEO Reed Hastings had made on his public Facebook page in June. In an SEC filing earlier today, Netflix reported that it received a notice from the regulator, which might seek a cease and desist or injunction against the subscription video company and its CEO.
At issue was a post in which Hastings announced that Netflix subscribers had watched more than 1 billion hours of video in June. That post got picked up by a number of news outlets, and Netflix stock rose that day. But as a result, the company is facing regulatory scrutiny for violating Reg FD, which is designed to provide equal access to material information among all investors, whether they be at big institutions or own small amounts of Netflix stock individually. That regulation requires public companies to issue a press release or Form 8-K when making material public information available.
Hastings took to Facebook (again) to defend his actions and to call into question the SEC investigation. He noted that the Facebook post was widely disseminated by the media, and compared the post with a previous statement the company had made on its blog, for which Netflix also didn’t release a press release or 8-K.
Among other things, Hastings wrote:
First, 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 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.
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.
Blogs, Twitter accounts, and now the public Facebook pages not only of a brand or corporation, but also of its officers. That’s the brave new world that the SEC is faced with regulating, and one that it doesn’t necessarily seem ready for. It’ll be interesting to see how this particular issue is resolved, and how it might affect future statements from Hastings and other high-profile executives on social networks.
For Hastings, hopefully it’ll be resolved sooner rather than later: “We remain optimistic this can be cleared up quickly through the SEC’s review process,” he wrote.