Netflix Faces SEC Action Over Facebook Post
A Netflix Facebook post has caught the attention of federal regulators. The Securities and Exchange Commission has recommended civil action be brought against Netflix and its CEO Reed Hastings for a July 3 post Hastings made on the company’s Facebook page. The post said Netflix online video viewing exceeded 1 billion hours for the first time ever in June.
According to the SEC, Facebook posts do not equal fair public disclosure of information that is material to investors. Per the SEC’s 12-year-old Regulation Fair Disclosure, public companies must make full and fair public disclosure of all non-public information that might be of substance to investors. The rule is in place to insider trading.
“We think posting to over 200,000 people is very public, especially because many of my subscribers are reporters and bloggers,” Hastings said in a Dec. 6 post, adding he did not believe the Facebook posting contained “material” information.
The SEC sent Netflix a Wells Notice, meaning the agency staff will either recommend the full commission pursue a cease-and-desist order or file a civil injunction against the company and Hastings over the alleged violation. Wells Notice recipients have an opportunity to object, and in some cases the agency will close the case without taking action.
Netflix stock indeed leapt from $67.85 a share on July 2 to $81.72 on July 5—two days following Hastings’ post. After the company reported its second-quarter earnings July 25 its stock fell 22 percent. Netflix closed at $86.17 on Dec. 6.
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