Netflix (NFLX), CEO Hastings Served SEC Wells Notice for Facebook Posting

December 6, 2012 5:25 PM EST
Netflix (Nasdaq: NFLX) shares are active in late trading Thursday following disclosure that the company and CEO Reed Hastings received a Wells notice from the U.S. SEC. The notice was over a regulation FD violation.

Hastings basically said it was for lack of disclosure following a Facebook (Nasdaq: FB) post that users enjoyed "nearly a billion hours per month" of Netflix. According to a letter filed via 8-K today:

"In June we posted on our blog that our members were enjoying “nearly a billion hours per month” of Netflix, and people wrote about this. We did not also issue a press release or 8-K filing about this.

In early July, I publicly posted on Facebook to the over 200,000 of you who subscribe to me that our members had enjoyed over 1 billion hours in June, highlighting how strong our content was. There was press coverage as there are many reporters and bloggers among you, my public followers. Some of you re-posted my post. Again, we did not also issue a press release or file an 8-K about this.

SEC staff informed us yesterday that they are recommending that the SEC bring a civil action against us for my July 1 billion hour public post, asserting we violated “Reg FD”. This rule is designed to ensure that individual investors have equal access to information as large institutional investors, by prohibiting selective disclosure of material information. The SEC staff believes that I gave you all “material” investor information in my post and that we needed to instead release the June viewing fact “publicly” with an 8-K filing or press release."

As far as Hastings is concerned, Facebook, and his 200,000 followers, of which many are reporters and bloggers, is plenty of public disclosure.

No word on what action will be taken moving forward as the SEC still has to evaluate its position on the subject. No doubt, Hastings and Netflix will move to defend their position if any suit is brought up.

Shares are lower in late trading, down about 1.4 percent.

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