SEC files lawsuit against Netflix over CEO's Facebook disclosure
In a recent turn of events, the US Securities and Exchange Commission (SEC) has issued a warning to streaming giant Netflix, suggesting that the company may face a civil lawsuit over a Facebook post made by its CEO, Reed Hastings, in June.
The post, which revealed that customers were streaming nearly a billion hours of video per month, has raised concerns about the company's adherence to Regulation Fair Disclosure (RFD). This regulation obliges listed companies to provide "material" information to all investors at the same time.
According to the SEC, investors who are not on Facebook were unfairly disadvantaged by not seeing Hastings' post, as it may have contained material information that should have been disseminated more broadly.
The 2009 guidelines issued by the SEC state that it is the company's responsibility to consider whether an online posting meets the criteria of being "reasonably designed to provide broad, non-exclusionary distribution of the information to the public".
Netflix, however, has traditionally disseminated material investor information through investor letters, press releases, and SEC filings. The company had previously blogged about serving nearly 1 billion hours per month a few weeks before the June post, but this was not considered a breach of RFD as it was not deemed material information at the time.
Reed Hastings, in a letter to investors yesterday, stated that he gave them "material" investor information in his post. He also argued that posting to over 200,000 people on Facebook is considered very public. Many of Hastings' Facebook subscribers are reporters and bloggers, further increasing the reach of the post.
However, Hastings believes the June viewing fact was not "material" to investors. This belief is contested by the SEC, who argues that any information that could potentially affect an investor's decision to buy, sell, or hold a security should be considered material.
The SEC's guidelines on the use of the Internet by listed companies, published in 2009, aim to ensure transparency and proper disclosure of material information via electronic means, including websites and social media. These rules align with the SEC's guidance on electronic communications and investor relations.
The company does not currently use Facebook and other social media to get material information to investors. The SEC's warning comes as a reminder to all publicly listed companies regulated by the SEC to comply with these Internet use and information dissemination policies to meet legal reporting requirements.
As the investigation continues, Netflix and its investors will be closely watching developments, with potential implications for the company's approach to disclosing material information in the future.
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