Netflix CEO’s Facebook Post Puts Company in Hot Water with SEC

Netflix is under fire from government regulators following a Facebook post its CEO made in July of this year that may have boosted the movie rental website's stock price, reported The Christian Science Monitor.

Netflix announced Dec. 6 that the Securities and Exchange Commission warned it that its staff is recommending civil action be brought against the company and CEO Reed Hastings for violating public disclosure rules with a Facebook post. Hastings quickly dismissed the allegation, saying he didn't believe the Facebook post was "material" information.

In a seemingly innocuous July 3 post, Hastings wrote on the company's Facebook page, "Netflix monthly viewing exceeded 1 billion hours for the first time ever in June."

The problem? According to the SEC, posting on Facebook doesn't amount to fair public disclosure of information that is material to investors. The same day Hastings made his Facebook post, Netflix shares rose more than six percent. On the first day of trading following the July 4 holiday, its shares rose another 13 percent.

"We remain optimistic this can be cleared up quickly through the SEC's review process," said Hastings in the public letter to shareholders.

Hastings took to Facebook once again Thursday to comment on the ongoing SEC investigation, saying the entire ordeal was a "fascinating social media story." He argued that the information was not material to the stock price, had been disclosed and reported on earlier and that because he had over 200,000 followers at the time, it was widely disseminated.

According the Monitor, Hastings has been on the board of directors of Facebook Inc. since June 2011 and as of Nov. 14 owned 72,639 Facebook shares.

"We think posting to over 200,000 people is very public, especially because many of my subscribers are reporters and bloggers," he said in his post Thursday.

The SEC would like to respectfully disagree. The commission says Hastings' July post contained material investor information that must be disclosed in a regulatory filing or news release.

For his part, Hastings still contends that he did nothing wrong, as he claims similar information was disclosed on the company blog in June.

The June 4 blog post states that Netflix's online customers were "enjoying nearly a billion hours per month" of streaming video. That announcement also was not put in a press release or an SEC filing.

"It's totally disingenuous to say that his statement wasn't material when the stock went from under $70 a share to more than $80 and the only data point was that post," said Wedbush Securities analyst Michael Pachter.

Netflix's stock jumped from $67.85 a share on July 2, the day before Hastings' post, to $81.72 on July 5. On July 25, its stock fell 22 percent to $60.28 when the company reported second-quarter earnings fell from $68.2 million a year earlier to $6.2 million this year.