In July of this year, the CEO of Netflix, Reed Hastings, made a facebook post announcing that its users had streamed more than 1 billion hours of video, a new record for Netflix. In response, Netflix's share price rallied by 6.2%.
This week the SEC issued Wells notices to Reed Hastings and Netflix, alleging that his facebook post may have violated fair disclosure rules that define material announcements made by public companies. The rules are designed to ensure that individual investors have equal access to information as large institutional investors, by prohibiting selective disclosure of material information.
Reed Hastings made the following announcement: "First, we think posting to over 200,000 people is very public, especially because many of my subscribers are reporters and bloggers. Second, while we think my public Facebook post is public, 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. We think the fact of 1 billion hours of viewing in June was not “material” to investors, and we had blogged a few weeks before that we were serving nearly 1 billion hours per month."
The announcement, and the SEC's action, raises an interesting discussion regarding what constitutes a "public" notice as well as highlighting the need for Company employees and executives to be educated re: the rules and best practices of social media use in corporate settings.
Alex Elawadi
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