SEC urged to update rules for social-media era
Netflix boss in hot water over July Facebook post
U.S. regulators, probing comments posted by Netflix Inc. chief executive Reed Hastings on Facebook, are being urged to reconsider disclosure rules created years before the advent of social media.
Netflix said it may face a Securities and Exchange Commission civil suit after Hastings told Facebook followers in July that Netflix customers watched more than one billion hours of videos in June, according to a filing by Netflix Thursday.
The company said that it didn’t issue an accompanying news release or make a filing with regulators.
Companies and executives are increasingly relying on sites such as Facebook and Twitter — alongside news wires and other more traditional outlets — to communicate with the public.
It’s time for the SEC to update its policies to account for the widening role played by social media in helping companies be more transparent, said Stephen Diamond, associate professor of law at Santa Clara University.
“The SEC rules are 12 years old, and in the technology world, that might as well have been in the last century,” said Diamond, whose school is located in Santa Clara, Calif.
“The SEC has always encouraged issuers to be more forthcoming. Here’s a medium which allows investors, quite easily and cheaply, to listen to what the CEO or other insiders are saying.”
The SEC adopted its fair disclosure regulations, known as Reg FD, in 2000 to inhibit companies from sharing sensitive information in a selective manner.
To comply, companies need to file a so-called Form 8-K or distribute a news release through a “widely disseminated” news or wire service or another “non-exclusionary method of disclosure,” according to the SEC.
The agency uses a socalled Wells Notice to signal that it may bring an action, which could result in a fine or settlement.
“The SEC staff believes that I gave you all ‘material’ investor information in my post and that we needed to instead release the June viewing fact ‘publicly’” through a news release or a regulatory filing, Hastings wrote, addressing his customers, in Thursday’s SEC filing.
Jonathan Friedland, a spokesman for Los Gatos, Calif.-based Netflix, said the company had no additional comment. Florence Harmon, a spokeswoman for the SEC, declined to comment.
The case against Netflix may hinge on whether Facebook or other social sites can be considered as public an arena as a company blog or a broadly disseminated news release. The outcome will have implications for other executives who share information through tweets and other consumer-web networks.
Tesla Motors Inc. CEO Elon Musk said on Twitter this week that his electric vehicle company is cash-flow positive, and Google Inc. executive Andy Rubin took to the microblogging site in June to say that 900,000 Android phones had been activated.
By using Reg FD to restrict disclosure via social media sites, the SEC could stifle the adoption of these tools in business, said Howard Lindzon, CEO of online-investing community StockTwits Inc.
“This is a warning shot for CEOs to be more careful,” Lindzon said. “They are locking down silos on how these CEOs communicate.”
The SEC has loosened rules in the past. Commissioners voted in 2008 to encourage companies to disclose more market-moving information via websites and blogs to give investors faster updates on business developments.