Facebook no place for 'material' news

A new generation of media CEOs as comfortable blogging as golfing could wind up on the wrong side of SEC rules about how to disclose information investors need. Not on Facebook, it seems.

This week the agency threatened Netflix CEO Reed Hastings with cease and desist proceedings or civil injunctive action for a Facebook post in July lauding his chief content officer for a company milestone.

“Congratulations to Ted Sarandos and his amazing content licensing team. Netflix monthly viewing exceeding 1 billion hours for the first time ever in June. When ‘House of Cards’ and ‘Arrested Development’ debut, we’ll blow these records away. Keep going, Ted, we need even more!” said Hastings’ post, which was read by 200,000 people.

Netflix stock rose that day.

Netflix revealed in an SEC filing that it and Hastings received a notice from SEC staff “indicating its intent to recommend to the SEC that it institute a cease and desist proceeding and/or bring a civil injunctive action against Netflix and Mr. Hastings for violations of Regulation Fair Disclosure.”

The rule knows as Reg FD was created in 2000 to address selective disclosure of information by public companies and protect small investors. Companies need to go wide with any material information through a press release or SEC filing. Some news organizations are also okay, but not Facebook, which didn’t launch until 2004.

Hastings, in a statement responding to the SEC, said Netflix thinks “posting to over 200,000 people is very public, especially because many of my subscribers are reporters and bloggers.” He argued that the 1 billion figure wasn’t material since it wasn’t new: Netflix had already blogged a few weeks before that it was serving “nearly 1 billion hours per month.”

And he noted “the (stock price) increase started well before my mid-morning post was out, likely driven by the positive Citigroup research report the evening before.”

“We remain optimistic this can be cleared up quickly through the SEC’s review process,” he said.

Wedbush Securities analyst Michael Pachter acknowledged social media as a growing force but said rules are still rules. “Taking on the SEC is maybe directionally a thing to do… but the SEC hasn’t (changed regs) yet so don’t assume it’s a news outlet,” he said on CNBC. “Even Facebook doesn’t use Facebook to disseminate material information.”

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