After Netflix Inquiry, SEC Clears Companies

More disclosure expected on Facebook, Twitter

The Securities and Exchange Commission is not pursuing any enforcement action against Netflix CEO Reed Hastings for posting corporate news on his Facebook page, and instead is giving the green light to public companies to make use of social media to disclose information as long as investors know that is where they should turn.

The SEC had launched an inquiry in July after Hastings posted on his personal Facebook page that Netflix had streamed 1 billion hours of content in the month of June, a first for the company. At issue was whether that was a violation of SEC regulations prohibiting public companies from selectively disclosing material. The SEC requires that such a disclosure be made “through a recognized channel of distribution.”

Hastings, the SEC said, had not previously used his Facebook page to announce company metrics, and the company had not alerted investors that his page would be a place where such information would be posted. Netflix’s stock price had been rising before the posting, the SEC said, and increased from $70.45 at the time of the post to $81.72 at the close of the following trading day.

“Personal 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,” the SEC said in a report on its investigation. Nevertheless, the regulators concluded that there “has been market uncertainty” about how the rule applies to social media.

“One set of shareholders should not be able to get a jump on other shareholders just because the company is selectively disclosing important information,” George Canellos, the SEC’s acting director of the division of enforcement, said in a statement. “Most social media 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.”

A Netflix spokesman did not immediately respond to a request for comment.

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