Reed Hastings, public persona and Netflix head honcho, took the opportunity to share some good news about his business with his 245,000 Facebook followers way back in July: Netflix viewers watched more than one billion hours worth of video in June (we proudly contributed to that number with our annual Arrested Development marathon).
Hastings has done this kind of thing before, but this time the stock bump that followed his status update caught the attention of the Securities and Exchange Commission–and then things got messy.
The SEC sent Hastings a notice letting him know that they’re investigating him and may file a suit against the company for violating the Regulation Fair Disclosure rule, which requires companies to release business news to all investors simultaneously. In other words, they’ve essentially accused him of facilitating insider trading by making a very public statement. Bring on the lawyers…
Hastings posted a follow-up to his fans this week, noting that “we don’t currently use Facebook and other social media to get material information to investors; we usually get that information out in our extensive investor letters, press releases and SEC filings” and that he didn’t believe the one billion statistic to be “material” to investors. He also theorized that the stock bump came not from the status update but from a positive Citigroup report issued the night before.
The SEC doesn’t look particularly good in this case. This was clearly not “insider information”, but there’s a big PR lesson to be learned here as well: We can certainly see why Hastings saw Facebook as the proper place to post this update, but he could have prevented the whole debacle by soliciting a simple press release. Sometimes one simply has to jump through the hoops, inconvenient as they may be.
The funniest thing about this story? A traditional release would have reached even fewer people. We’re in the social media age–and it’s clearly time for the SEC to update its disclosure rules.