The post revealed that Netflix subscribers (to the service, not to Hasting’s Facebook page) had exceeded 1 billion viewing hours. The stock surged, and the SEC is alleging that the post violated Regulation Fair Disclosure (“Reg FD”). In another Facebook post, Hastings acknowledges that the company did not issue a press release or file an 8-K regarding this information.
The SEC enforcement staff seems to think that a press release constitutes “public disclosure,” but that a Facebook post does not. It is not clear how many news media outlets receive Netflix press releases, but it is almost certainly less than a few thousand. These media outlets report the information and in that way, according to the SEC, that information is disclosed “fairly.” As far as an 8-K filing, anyone wishing to see that information would need to go to the SEC website (or rely on a service that aggregates and redistributes such filings). Either way, the time lag between the news release and the information getting to investors will vary with the attention of the investor and the access to information sources that investors have.
The post on Facebook was available immediately to over 200,000 subscribers to Hastings’ Facebook account. It is also not clear how many of these subscribers are Netflix investors or equity analysts. It is clear however that posting on Facebook removes any advantage for the equity analysts and professional traders who monitor the press releases closely.
But professional traders and equity analysts are not the only—or to listen to their pronouncements, even the main—SEC constituents. Questions are already coming up about what the SEC should permit regarding disclosure via social media. If the SEC goes forward with this action against Netflix, it will signal that they are trying to restrict, not expand the sources that investors have for obtaining information about companies. This is exactly the opposite of what they should be doing.
Note: The author does not hold any Netflix or Facebook stock or have any financial interest (except as a subscriber to their services) in either company.
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Bill Long is Managing Director at The ReThink Group where he analyzes alternative investments and financial markets for institutional investors and family offices.