Netflix social media posts draw SEC Wells notice

December 11, 2012

Netflix social media posts draw SEC Wells notice

Social media users are coming to grips with the scrutiny that social media posts can draw in the hiring and employment process, but now Netflix is facing a Securities and Exchange Commission inquiry into posts it made on its Facebook page and a company blog that discussed key milestones for customers’ video viewing.

Last summer, Netflix announced on its company blog that Netflix customers were approaching one billion hours of content viewed each month. The next month, Netflix CEO Reed Hastings posted on his Facebook page that Netflix customers had breached the one billion hours per month mark. Media latched on to Hastings’ post and Netflix stock rose 13 percent the next day.

Will SEC review its requirements for public disclosure?

The SEC issued a Wells notice to Netflix, according to announcements that Netflix made via a press release, an SEC filing and on Facebook. A Wells notice notifies a company that the SEC has finished an investigation and found infractions. Reports from various media outlets indicate that the SEC is investigating Netflix for violating fair-disclosure rules of material information.

The company has a chance to respond to the Well’s notice. In Hastings’ most recent Facebook posting, he argued that Netflix had not done anything wrong. The under-fire CEO noted that with Netflix’ 240,000+ Facebook followers, Facebook is a sufficiently public forum to distribute material information. He also noted that he did not think that the number of hours per month that users are streaming video on its servers was “material” for fair-disclosure purposes.

It remains to be seen whether Netflix will face any penalties for its Facebook postings, but it’s possible that the SEC may use this matter as an opportunity to usher in a new era — one that allows companies to share pertinent information with investors via social media as well as by filing with the SEC. But public companies and their key officers should be on notice:  they shouldn’t post material disclosures on social media for now if they want to stay on the right side of the SEC.

(Note: this blogger owns Netflix stock.)