Netflix CEO Says Won’t Retreat From SEC on Facebook Posts
Netflix Inc. (NFLX) Chief Executive Officer Reed Hastings said he will keep posting on Facebook as the U.S. Securities and Exchange Commission weighs whether to file a lawsuit over a disclosure he made on the social network.
“I wasn’t setting out to set an example. I was sharing something to these 200,000 people,” Hastings said yesterday in an interview at Bloomberg’s New York headquarters. “I’m not going to back down and say it’s inappropriate. I think it’s perfectly fine. Sometimes you’re just the example that triggers the debate.”
Hastings, 52, stirred controversy over SEC disclosure guidelines when he wrote in a July 3 Facebook Inc. (FB) post that viewing on Netflix’s video-streaming service had “exceeded 1 billion hours for the first time” in June.
In December, Hastings and Netflix each received a Wells Notice, indicating SEC staff had determined sufficient wrongdoing occurred to warrant a civil claim against Hastings and his Los Gatos, California-based streaming-video company for allegedly violating selective disclosure rules. The SEC is weighing whether to bring a case.
The incident, which could result in sanctions, has led to calls for the SEC to broaden its rules to allow social media such as Facebook and Twitter to be used to communicate to investors. Hastings said in December that posting to his Facebook contingent of 200,000 followers “is very public.” He also argued that the information wasn’t material, since Hastings had said on his company blog several weeks earlier usage was approaching 1 billion hours a month.
“Absolutely I am,” Hastings said when asked yesterday whether he’d post again on the social-media website. “Why not? It will sit before the commissioners for a while and then, at their leisure they’ll consider it, which could be anytime over a year.”
John Nester, a spokesman for the SEC, declined to comment.
Hastings, who sits on the board of Menlo Park, California- based Facebook, pointed out that he disclosed the Wells notice on the social network. In that instance, Netflix also made a regulatory filing. In the interview yesterday, he stopped short of saying he would post material information on Facebook without taking the additional step of a regulatory filing.
SEC staff determined that the July post violated Regulation FD, which requires public disclosure, such as through a press release on a widely disseminated news or wire service, or by “any other non-exclusionary method” that provides broad public access.
“Reg FD was about protecting me from telling Carl Icahn something special, the big investor, that not everyone else got,” Hastings said. “This was me talking to 200,000 Facebook followers; it is letting the small guy in on the information.”
Netflix has garnered support from former SEC commissioner Joseph Grundfest, who filed an amicus brief with the commission this week. Hastings’s posting wasn’t material or selective, and doesn’t violate Reg FD, he wrote. Guidelines that allow companies to post material information on their websites but not on Facebook are outdated because they fail to account for “the evolution of social media,” and should be addressed through rule-making, he said.
“It makes little or no sense” to take legal action against Netflix, wrote Grundfest, now a Stanford Law School professor. “The proposed enforcement action is a questionable allocation of limited agency resources.”
Netflix fell 1.7 percent to $164.85 at 1:24 p.m. in New York. As of yesterday, the shares had risen 81 percent in 2013. Last week, the company reported a surprise fourth-quarter profit on subscriber gains that exceeded estimates.
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