According to Netflix CEO Reed Hastings’ Facebook post in July 2012, “Netflix[‘s] monthly viewing exceeded 1 billion hours for the first time ever in June.” This 15-word sentence might involve Netflix in a lengthy dispute with the SEC, which believes that the posting may be in violation of the SEC’s Regulation FD. The regulation requires public entities to make full and fair public disclosure of material non-public information. Though it is unclear whether disclosing company information through social media is a violation of SEC regulations, Hastings has implied that the SEC intended such announcements to be made through a press release or a regulatory filing.
The SEC notified Hastings and Netflix of the violation through a Wells Notice. A Wells Notice indicates that a securities regulator has concluded an investigation, found infractions, and will recommend enforcement action of either a cease-and-desist action and/or a civil injunction against Netflix and Hastings. The notice gives the respondent the opportunity to explain why such an action is not needed.
Hastings has responded that he does not believe the post revealed material information. However, analysts have pointed out that Netflix’s share price increased 13 percent after the posting. Hastings also wrote that posting to his Facebook page, where many of his 200,000+ friends who are reporters can see the posting, is public disclosure.
The broader question, however, is to what extent can public companies release information through social networks without violating SEC regulations? There is no clear answer, but the SEC’s response to Netflix may give an indication of how the agency will regulate social media.