Netflix's Hastings avoids SEC scrutiny

The Securities and Exchange Commission (SEC) won't take action against Netflix (Nasdaq: NFLX) CEO Reed Hastings over comments he posted on his Facebook page. The Commission, instead, used the brouhaha over the disclosures to issue a report clarifying how social media can, and should, be used when companies communicate material information to shareholders.

Hastings became a potential target for the government agency with a July 3, 2012, Facebook post that announced Netflix had "exceeded 1 billion hours for the first time" the previous month. The company had not officially disclosed this milestone via any of the traditional media and that, in turn, led to an outcry that Hastings had done something wrong.

The SEC took that outcry as an opportunity to clarify guidance it issued in 2008 about using websites to disseminate information to shareholders--as long as those shareholders know where to look. The new report, issued in lieu of taking action against Hastings or Netflix, "clarifies that company communications made through social media channels could constitute selective disclosures and, therefore, require careful Regulation FD [Fair Disclosure] analysis," an SEC statement said.

Most social media, which have exploded since 2008, "are perfectly suitable methods for communicating with investors, but not if the access is restricted or if investors don't know that's where they need to turn to get the latest news," George Canellos, acting director of the SEC's Division of Enforcement, said in a Commission press release. "One set of shareholders should not be able to get a jump on other shareholders just because the company is selectively disclosing important information."

This, apparently, was not the case with Hastings' Facebook posting, which was available to everyone--although it stepped close enough to the line to warrant a further look, the SEC conceded.

"Netflix did not report this information to investors through a press release or Form 8-K filing, and a subsequent company press release later that day did not include this information," the Commission's press release stated.

On top of this, and complicating matters still further, neither Netflix nor Hastings had previously used Facebook to "announce company metrics" and never told investors that Hasting's personal Facebook page might be used to do so, the press release said.

What pulled Hastings from regulatory hot water was "market uncertainty" about social media, the Commission said. The new report aimed to resolve that uncertainty, although it was noted that "[p]ersonal social media sites of individuals employed by a public company would not ordinarily be assumed to be channels through which the company would disclose material corporate information."

"Companies should review the Commission's existing guidance--it is flexible enough to address questions that arise for companies that choose to communicate through social media, and the guidance does so in a straightforward manner," said Lona Nallengara, acting director of the SEC's Division of Corporate Finance, in the press release.

For more:
- the SEC issued this press release

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