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Netflix, Reed Hastings Given SEC Warnings

6 Dec, 2012 By: Erik Gruenwedel

The Securities and Exchange Commission has issued cease-and-desist warnings to Netflix and its co-founder and CEO, Reed Hastings, for violating provisions of the Regulation Fair Disclosure of the Securities Exchange Act.

In a Dec. 5 regulatory filing, Netflix and Hastings separately received a so-called “Wells Notice” from the agency’s staff indicating its intent to recommend to the SEC that it institute a cease-and-desist proceeding and/or bring a civil injunctive action against the subscription video-on-demand pioneer and its CEO for failing to disclose pertinent information to investors.

At issue is a post Hasting put on his personal Facebook page in July heralding the fact that Netflix members in June streamed “nearly a billion hours per month” of content. Hastings’ public Facebook page has about 200,000 followers (dubbed “subscribers”).

News of the streaming data spiked Netflix shares that day, despite the fact Netflix did not issue a press release or SEC filing of the milestone, as required by the rules governing publicly held companies.

“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’ with an 8-K filing or press release,” Hastings wrote in response to the filing.

The CEO said he believed his Facebook post was public, as it was picked up by bloggers and the media within minutes of the post.

Hastings said Netflix doesn’t use social media to distribute information to investors, opting instead for extensive investor letters, press releases and SEC filings. He said 1 billion hours of viewing in June was not material to investors since Netflix blogged a few weeks earlier news to the effect.

“While our stock rose the day of my public post, the increase started well before my mid-morning post was out, likely driven by the positive Citigroup research report the evening before,” Hastings wrote. “We remain optimistic this can be cleared up quickly through the SEC's review process.”

About the Author: Erik Gruenwedel

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