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Facebook post haunts Netflix

The company and its CEO could face SEC action over an online claim that preceded a stock gain.

Reed Hastings, president and chief executive officer of Netflix Inc., speaks during a luncheon at the Canadian Club of Toronto in Toronto, Ontario, Canada, on Friday, Feb. 3, 2011. Netflix Inc. has no plans to get into sports content or gaming and will focus solely on movies and TV shows, said Hastings. Photographer: Norm Betts/Bloomberg *** Local Caption *** Reed Hastings
Reed Hastings, president and chief executive officer of Netflix Inc., speaks during a luncheon at the Canadian Club of Toronto in Toronto, Ontario, Canada, on Friday, Feb. 3, 2011. Netflix Inc. has no plans to get into sports content or gaming and will focus solely on movies and TV shows, said Hastings. Photographer: Norm Betts/Bloomberg *** Local Caption *** Reed HastingsRead moreBloomberg
    by By Cliff Edwards, Bloomberg News, Inquirer
    Published 

Netflix Inc. and chief executive officer Reed Hastings said they may face a Securities and Exchange Commission civil claim over a July Facebook post that coincided with a big gain in the company's stock price.

SEC staff alleges Netflix and its CEO violated rules governing selective disclosure, according to a company filing. The July 3 post by Hastings said Netflix viewing "exceeded 1 billion hours" of videos in June. The shares rose 6.2 percent that day.

The SEC action highlights the potential for legal trouble when company executives like Hastings, who has more than 200,000 Facebook fans, communicate with the public via social media. Regulation Fair Disclosure, aimed at preventing selective reporting, was passed by the SEC in 2000, before the use of social-media outlets like Facebook and Twitter exploded.

"This may be a case when the SEC needs to play catch-up," said Charley Moore, executive chairman and founder of San Francisco online legal services firm Rocket Lawyer. "Disclosing information to 200,000-plus Facebook users is basically the same as issuing a press release."

Regulation Fair Disclosure requires public disclosure, such as through a press release on a widely disseminated news or wire service, or by "any other non-exclusionary method" that provides broad public access. In June, Hastings had posted on his company blog that members were viewing "nearly a billion hours per month." With neither the June blog post nor the Facebook post did he issue a press release or file with the SEC.

"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," he said in a Thursday filing.

Netflix and Hastings, 52, each received a Wells Notice, which the SEC sends after its staff determines wrongdoing has been done that warrants filing civil claims.