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
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Guru Careers: Financial Director / FD / Senior Finance Manager

Up to 70k DOE: Guru Careers: We are seeking an experienced Financial Director ...

Recruitment Genius: Junior / Apprentice Sales Executives - OTE £50,000

£11000 - £50000 per annum: Recruitment Genius: This financial company offer ma...

SThree: Recruitment Consultant

competitive + incentives + uncapped comms: SThree: Did you know? 98% of our di...

SThree: Trainee Recruitment Consultant

competitive: SThree: Did you know? 98% of our directors started with SThree as...

Day In a Page

Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

US betrayal of old ally brings limited reward

Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
VIPs gather for opening of second Suez Canal - but doubts linger over security

'A gift from Egypt to the rest of the world'

VIPs gather for opening of second Suez Canal - but is it really needed?
Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
The male menopause and intimations of mortality

Aches, pains and an inkling of mortality

So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

'How can I possibly be on the list with these writers I have idolised?'

Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

Bettany Hughes interview

The historian on how Socrates would have solved Greece's problems
Art of the state: Pyongyang propaganda posters to be exhibited in China

Art of the state

Pyongyang propaganda posters to be exhibited in China
Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

Vegetarian food gets a makeover

Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks
The haunting of Shirley Jackson: Was the gothic author's life really as bleak as her fiction?

The haunting of Shirley Jackson

Was the gothic author's life really as bleak as her fiction?
Bill Granger recipes: Heading off on holiday? Try out our chef's seaside-inspired dishes...

Bill Granger's seaside-inspired recipes

These dishes are so easy to make, our chef is almost embarrassed to call them recipes
Ashes 2015: Tourists are limp, leaderless and distinctly UnAustralian

Tourists are limp, leaderless and distinctly UnAustralian

A woefully out-of-form Michael Clarke embodies his team's fragile Ashes campaign, says Michael Calvin
Blairites be warned, this could be the moment Labour turns into Syriza

Andrew Grice: Inside Westminster

Blairites be warned, this could be the moment Labour turns into Syriza
HMS Victory: The mystery of Britain's worst naval disaster is finally solved - 271 years later

The mystery of Britain's worst naval disaster is finally solved - 271 years later

Exclusive: David Keys reveals the research that finally explains why HMS Victory went down with the loss of 1,100 lives
Survivors of the Nagasaki atomic bomb attack: Japan must not abandon its post-war pacifism

'I saw people so injured you couldn't tell if they were dead or alive'

Nagasaki survivors on why Japan must not abandon its post-war pacifism
Jon Stewart: The voice of Democrats who felt Obama had failed to deliver on his 'Yes We Can' slogan, and the voter he tried hardest to keep onside

The voter Obama tried hardest to keep onside

Outgoing The Daily Show host, Jon Stewart, became the voice of Democrats who felt the President had failed to deliver on his ‘Yes We Can’ slogan. Tim Walker charts the ups and downs of their 10-year relationship on screen