SEC Doesn't "Like" CEO's Facebook Post

Ever since social media came on the scene I’ve wondered how long it would take for the Securities Exchange Commission (SEC) to begin to monitor the sites and enforce disclosure regulations.  I have to admit, it’s taken longer than I had anticipated, but it seems Netflix is one company that could help provide some precedent.

The New York Times reported that a Facebook post from Netflix CEO Reed Hastings may have caught the attention of the SEC.  The company announced last week that the SEC sent the company and its CEO Wells notices, which means that the regulatory agency could file suit against the company.

The basis for the suit would be a possible violation of the fair disclosure regulations.

On July 3^rd, the CEO posted this on Facebook:

“Congrats to Ted Sarandos, and his amazing content licensing team. Netflix monthly viewing exceeded 1 billion hours for the first time ever in June. When House of Cards and Arrested Development debut, we'll blow these records away. Keep going, Ted, we need even more!”

It may have seemed pretty mild to the average Facebook visitor, but to analysts and company followers that kind of information could be very useful, or so thinks the SEC.  And without fairly disclosing this across the board through standard disclosure channels (press release, wire distribution, an equal access teleconference, broad Internet access, etc.), some investors could gain an unfair advantage.  In other words, the SEC could decide that the post selectively disclosed material information.

The CEO maintains that by posting to Facebook, he did disclose the information as the Times describes as “fairly broadly.”  Since the Facebook post was accessible to the public and his account has 200,000 subscribers, it could satisfy the requirements of fair disclosure.  Further, the post spawned even broader media coverage.

Hastings also claimed that prior to the troubling Facebook post the company had mentioned on its blog that it was providing almost one billion hours of video each month.

It’s hard to say where it goes from here, but usually when the SEC decides to file suit it does so for a couple of reasons:  first, it wants the publicity and to get it, the agency will go after high-profile companies; or second, it wants to set an example and define/refine a precedent for future enforcement and compliance.

By targeting Netflix, the SEC already satisfied one of its objectives.  Now we all will watch and see just where the SEC and possibly the courts determine how social media fits into the larger disclosure process.

If I were the betting type, I’d say the SEC could see this as an opportunity to put careless social media users in their place, particularly if those users are C-suite execs.  Meanwhile, it may be best for CEOs like Hastings to be a lot more careful on Facebook and Twitter.