Netflix CEO counters that Facebook post was public, and info was not ‘material’ to investors
The SEC has said it may take civil action against Netflix and its CEO Reed Hastings for violating public disclosure rules by posting viewership information of the video rental business on Facebook and not through its regular disclosure channels.
Netflix was sent a notice ‘from the staff of the Securities and Exchange Commission indicating its intent to recommend to the SEC that it institute a cease and desist proceeding and/or bring a civil injunctive action against Netflix and Hastings for violations of Regulation Fair Disclosure’.
On July 3, Hastings posted on Facebook that ‘Netflix monthly viewing exceeded 1 bn hours for the first time ever in June’. The Facebook post was available to almost a quarter of a million people, but the post was not accompanied by a formal press release.
The Wells Notice sent by the SEC does not necessarily commit the SEC to a cease and desist order of civil claims but it indicates that SEC staff will recommend proceedings against Hastings or the company, but will give the company a chance to respond first.
In a December 5 posting to Facebook that was also filed to the SEC in response to the Wells Notice, though, Hasting disputed the SEC staff claims, arguing that his post on Facebook did constitute public disclosure and that the information was not particularly ‘material’ to the company’s investors.
‘The SEC staff believes that I gave you all ‘material’ investor information in my post and that we needed to instead release the June viewing fact ‘publicly’ with an 8-K filing or press release,’ Reed writes. ‘I want to note a few things. 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,’ Reed says. ‘We think the fact of 1 bn hours of viewing in June was not ‘material’ to investors, and we had blogged a few weeks before that we were serving nearly 1 bn 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.’
