Netflix CEO Hastings faces SEC action over Facebook post

http://www.businessweek.com/news/2012-12-06/netflix-ceo-hastings-faces-sec-action-over-facebook-post

by jpwagner • 14 years ago

89 46 14 years ago

ryporter3• 14 years ago

While I have a lot of respect for the SEC's increased crackdown on financial wrongdoing such as insider trading, this really seems like a stretch. Considering how quickly "internal" company memos are publicly disseminated, I don't see how a Facebook post to 200K fans can be considered anything but public.

pmorici• 14 years ago

"While I have a lot of respect for the SEC's increased crackdown on financial wrongdoing"

Really? I honestly find it hard to imagine how they could possibly do less in terms of enforcement. There appears to have been huge amounts of fraud going on during both the bubble of the late 90's and the more recent crisis. The the best the SEC has managed is to nab a few people for insider trading.

shawn-butler3• 14 years ago

Have they even investigated the selective disclosure that was widely reported to have gone on during the facebook fiasco? Someone should have been charged for that.

ryporter3• 14 years ago

The SEC could certainly do (much) more, but I'm merely claiming that they seem to be improving. Most of the articles I've read about Mary Schapiro's recent retirement conclude that she left the SEC in a better state than she found it. For example, from [1]:

She inherited a mess at the S.E.C. Critics contended that Christopher Cox, her predecessor, left an agency with low morale that was ill-prepared to cope with the financial crisis... Ms. Schapiro directed much of her early attention on the beleaguered enforcement unit... Over the last two years, the unit has filed a record number of actions and brought 129 cases against people and firms tied to the crisis.

[1] http://dealbook.nytimes.com/2012/11/26/schapiro-head-of-s-e-...

rayiner4• 14 years ago

I don't think it's so clear cut. What if it was 20,000 big bank analysts? Clearly that would be unfair disclosure. 200,000 Facebook followers? Maybe not, but part of the point of launching an investigation is to gather facts to put that in context.

ryporter3• 14 years ago

It would certainly be different if it were restricted to a specific group, but part of the point was that it was not. Given that this wasn't exactly a backroom deal, I have trouble seeing what an investigation could uncover beyond the first hour of fact finding. Plus, the article makes it sound like the SEC has moved beyond the initial fact-gathering stage and is now actively considering filing charges based on what they know.

elithrar• 14 years ago

If the post was available to non-Facebook users (and I assume it was, as that's the default "Public" category behaviour), then the SEC is really picking at straws here.

shawn-butler3• 14 years ago

Hmm, when I go to https://www.facebook.com/reed1960 I am presented with a login screen. When I click the "CLOSE" button I see no information.

How is that information available to the public exactly? Am I missing something?

natrius• 14 years ago

The direct link to the post is publicly accessible. A Facebook account is necessary to subscribe to posts, but you used to have to pay for a newspaper to see press releases.

https://www.facebook.com/reed1960/posts/10150955446914584

hkmurakami• 14 years ago

If I read the article correctly, the June blog entry is "okay" while the July facebook post is not? (please correct me if I'm reading this wrong)

If disclosure via Facebook is unfair because it's not reaching everyone at once, then isn't a disclosure via blogpost bad as well, since not everyone has internet?

rmc3• 14 years ago

The posts were different. The June blog post said "nearly a billion". The July facebook post said "exceeded 1 billion". It shows they crossed over an objective threshold.

batgaijin• 14 years ago

So that's what the SEC does...

imrehg• 14 years ago

Given the recent issues with Facebook not showing your updates to all your followers, but to merely a tiny fraction of them, I wonder how that would affect these things.

rickdale• 14 years ago

If the government wants to get you they will get you. Thats true on all levels.

The Charlie Moore quote, claiming a facebook post is basically a press release and saying the SEC may need to play catch up is what catches my attention here. I would suggest to play it safe and release a press release as well, but my guess is Hastings knew what he was doing.

sageikosa2• 14 years ago

Maybe he just wanted to shake the "press/government" duopoly. Let's face it, a press release these days may actually reach fewer people than a Facebook posting.

joonix• 14 years ago

I don't see how hours viewed is material at all. It doesn't even reflect the number of users, just usage. If 1,000 users watch 24 hours per day non stop, it doesn't mean more money for Netflix.

There is a lot of serious stuff going on out there that SEC should be pursuing, not nonsense like this.

robflynn• 14 years ago

I work for a government funded program that does video streaming and dvds rentals. Our quarterly reports are listed in "hours viewed" as well.

Media is a strange land.

MediaSquirrel• 14 years ago

It matters because it a) determines the companies costs which directly affect profits, and b) indicates engagement and the likelihood that subscribers will quit.

tankbot3• 14 years ago

Remember when McDonalds got in trouble for putting "Over a million served." on their signs? Or the scads of other businesses that the SEC routinely cracks down on for similar announcements? The criminals at Netflix should hang for this crime.

hnriot• 14 years ago

how could hours viewed not be material? Given that most people don't spend every hour of the day watching netflix, the number is a function of users.

It's a very typical metric for a streaming video service.

newbie12• 14 years ago

It isn't nonsense. He disclosed material inside information, that apparently moved the stock, to a non-public list of "fans". All investors should have access to this information, not just people who like the company on Facebook.

abraham• 14 years ago

The post was public.

creativityland• 14 years ago

Quoting a comment from the article:

What an idiot! Insider information is only for the very rich and people in the government!

acangiano• 14 years ago

Get on with the times SEC.

jason_slack• 14 years ago

Can someone explain, simply, how this is a problem? I mean isn't '1 billion hours' simply a statistic, a fact, a nice tidbit you might say?

Like Apple announcing how many iphones they have sold? Or how many apps have been downloaded to date?

What do I misunderstand?

ComputerGuru• 14 years ago

Yes. That's not the problem.

The problem is that the SEC cracks down hard on "insider information." The point being, if in a private meeting with you, the CEO told you they did something über cool and you used that to buy stocks, then you had info someone outside the company didn't, and that is a violation of SEC rules.

The question here is whether or not posting on a facebook page is a "private" matter. If they posted this in a PR release (or, recently, on their website) for all to see, it would be one thing. But posting it on a facebook page where by default only the subscribers to that page would see it, the SEC suspects it is an unfair disclosure.

rmc3• 14 years ago

To expand: Imagine if the CEO of the company didn't use Facebook publically, but only had friends, family etc. on there, maybe 200 people. And then posted there first. That might count as an insider trading / private.

iamtherockstar• 14 years ago

I heard a story on NPR recently about how the SEC is dramatically underfunded, but I can't seem to find it now. If they're really that underfunded, I wonder if this is someone trying to make their career by finding a new and cheap way of bringing in revenue in fines.

rayiner4• 14 years ago

"May face" is the key word here. The SEC is likely investigating the issue to see if he was using Facebook to give material information preferentially to a subset of investors. An investigation is quite far away from being an actual lawsuit.

As for people asking why the SEC goes after stuff like this--the SEC's authority is pretty narrow. We use a very free-market regulatory model for public companies. Instead of telling them what to do, we basically police the information they put out to the public, and depend on the markets to act on that information to punish bad corporate governance and reward good corporate governance. Pretty much the whole authority of the SEC revolves around disclosure.

Alaskan005• 14 years ago

Maybe he violated the letter of the law but I don't see a comment where everyone can read it, and broadcast to 200,000 people isn't public disclosure.

dlhavema• 14 years ago

Are there specific news outlets that the SEC considers as official press release outlets? or is merely the act of releasing a press release? My point is, what if they issued a press release in some Podunk town ( with say 1,000 people) instead of on facebook?

alanctgardner2• 14 years ago

Is this the primary motivation for press-release services, to cover your ass with the SEC by pushing publication off on a third party? Or do they offer some other value I'm not aware of?

kapnobatairza• 14 years ago

Interesting given Musk's tweet yesterday about Tesla being cash flow positive for a week. Could we see SEC action there?

chollida1• 14 years ago

I think alot of people are missing the point here.

There are specified channels for disclosing "material" information.

These have been designed and vetted so that everyone at least has the chance of getting the same information at the same time.

The SEC may be a bit dated but I think everyone agrees that you can't have CEO's passing out information in private or non sanctioned forums that people can trade on.

Otherwise everyone would have to watch Facebook feeds and twitter and Google+ and every blog in addition to the sanctioned channels.

I don't see any way in which the Netflix CEO didn't do the wrong thing here.

I do agree that the SEC has bigger fish to fry

Netflix CEO Hastings faces SEC action over Facebook post

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