The Securities Litigation Expert Blog

Netflix gets Wells Notice from Facebook Post

Posted by Jack Duval

Dec 10, 2012 3:18:48 AM

The AmLaw Litigation Daily is reporting that Netflix received a Wells Notice for a Regulation FD violation caused by CEO Reed Hastings posting on Facebook.  (AmLaw)

CEO Reed Hastings announced the receipt of the Wells Notice and defended his actions on, you guessed it, Facebook.  Here it is:

Hastings disclosed on Thursday that the Securities and Exchange Commission is looking into whether a message he posted on his public Facebook page in July violated Regulation Fair Disclosure ("Reg FD"), a rule promulgated by the SEC in 2000 that requires all publicly traded companies to disclose material information to all investors at the same time. According to a statement that Hastings posted on his Facebook page on Thursday, his company just received a "Wells notice" from the SEC staff, recommending that the agency bring an enforcement action against the company over the July post.
In his July Facebook post (which BusinessWeek included in its story), Hastings touted the fact that Netflix subscribers had watched a combined 1 billion hours of video the previous month. The company's stock shot up 6 percent the day of the announcement, although it's tough to say whether the Facebook post triggered the uptick—the day before, a Citigroup analyst issued an upbeat report on Netflix's future.

More than 200,000 Facebook users subscribe to Hasting's Facebook page. Subscribing to Hastings' page will put you on notice when he posts content, but any of Facebook's 1 billion users can read his musings.

On Thursday, Hastings defended himself on Facebook, of all places. "[W]e think posting to over 200,000 people is very public, especially because many of my subscribers are reporters and bloggers," he wrote in the post. "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."


I'm pretty sure this violates the letter of Regulation FD, but probably not the spirit.  The big argument will be over whether the information was material.



As we have noted before, social media is emerging as a big compliance and supervisory issue for broker-dealers, and now all public companies.  See our previous coverage here and here.
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Topics: FINRA, social media, Netflix, litigation, SEC, Wells Notice, Facebook, Compliance, Reed Hastings, Regulation FD, regulation.

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