SEC threat to prosecute Netflix boss over update on Facebook

Regulator may take action after viewing figures announced by social media

New York

Netflix and its chief executive, Reed Hastings, are facing the threat of civil action from Wall Street regulators after the Silicon Valley boss used Facebook to publish an update on the video streaming website's viewing figures.

In a case that could have far-reaching implications about how companies use social-media outlets such as Facebook and, increasingly, Twitter, the US Securities and Exchange Commission put Netflix and Mr Hastings on notice about potential action stemming from a July Facebook post which the regulator says violated rules that prohibit selective disclosure of company information.

Mr Hastings has hit back by saying that "posting to over 200,000 people is very public".

The now controversial, 43-word post was uploaded on 3 July. In a first for the website, Netflix members had clocked up more than 1 billion viewing hours in June – and Mr Hastings wanted to beat the drum about the record, so went to Facebook, where 200,000-plus people subscribe to updates on his page, which is open to anyone to view.

"Netflix monthly viewing exceeded 1 billion hours for the first time ever in June," he crowed.

However, the company did not issue a press release or lodge a regulatory filing with the Securities and Exchange Commission (SEC) that would have been made public for Wall Street investors, which is the way US companies normally comply with the country's so-called Regulation Fair Disclosure.

This rule requires that firms announce important information to all investors at the same time to ensure a fair market in the shares.

The same day as the Facebook post, Netflix shares jumped from under $70 a piece on 2 July to above $80, an upward movement that, Mr Hastings says, was already in motion before his post, thanks to "a positive Citigroup research report the evening before."

He challenges the SEC's suggestion that disclosure contained information that would have called for a more formal method of dissemination.

"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 another Facebook post this week.

SEC staffers, though, think he should indeed have gone down a more formal avenue and served a Wells Notice on him and Netflix warning it may file charges or seek a cease-and-desist order. The notices are in effect a warning that the regulators plan to recommend action but provide recipients with a chance to object.

"We think posting to over 200,000 people is very public, especially because many of my subscribers are reporters and bloggers," Mr Hastings said in his latest post, which this time was also filed with the SEC.

The case has reanimated discussion about social media and they way it impacts companies and regulations.

"The evolution of social media presents the SEC with some very interesting regulatory challenges. But if they're worried about social media, there are ways for them to address that without threatening to sue Reed Hastings," Joseph Grandest, a Stanford Law School professor and former SEC commissioner, said. "They should have a rulemaking where they can ventilate these issues."

The view was echoed by others, who said some of the norms about corporate transparency were out of date.

"The SEC rules are 12 years old and in the technology world, that might as well have been in the last century," Santa Clara University law professor Stephen Diamond told Bloomberg.

Start your day with The Independent, sign up for daily news emails
Life and Style
A monstrous idea? Body transplants might no longer be science fiction
Science An Italian neurosurgeon believes so - and it's not quite as implausible as it sounds, says Steve Connor
Demba Ba (right) celebrates after Besiktas win on penalties
footballThere was no happy return to the Ataturk Stadium, where the Reds famously won Champions League
Arts and Entertainment
Natural beauty: Aidan Turner stars in the new series of Poldark
arts + ents
Mia Freedman, editorial director of the Mamamia website, reads out a tweet she was sent.
arts + ents
Arts and Entertainment
The write stuff: masters of story-telling James Joyce, left, and Thomas Hardy
arts + ents...begging to differ, John Walsh can't even begin to number the ways
Jose Mourinho on Sky Sports
footballEXCLUSIVE COLUMN Paul Scholes: It was not a leg-breaking tackle, as the Chelsea manager had claimed
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Telesales / Marketing Executive - B2B - OTE £25,000

£17000 - £25000 per annum: Recruitment Genius: An opportunity to join this new...

SThree: Trainee Recruitment Consultant

£18000 - £21000 per annum + OTE £45,000: SThree: SThree Group have been well e...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Recruitment Genius: Business Control Manager

£36000 - £44000 per annum: Recruitment Genius: Encouraging more businesses to ...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower