Why the SEC Is Right to Nail Netflix
I'm stunned to see so many people — including a number of my colleagues — mocking the U.S. Securities and Exchange Commission's action against Netflix founder Reed Hastings for fair disclosure violations.
On Thursday, the company disclosed that it has received notice that the SEC intends to take action against Netflix and CEO Reed Hastings for violating Regulation FD for a Facebook posting by Hastings last June.
As I wrote at the time in "Did Netflix Violate Fair Disclosure Rule": "Netflix CEO Reed Hastings, intentionally or not, appears to be pushing for a new definition of what constitutes fair disclosure."
Indeed, that is exactly what is going on here — and it needs to be done.
Social media are increasingly setting a new standard for news dissemination. News outlets use them. The SEC uses them. But should companies use them?
Current rules call for companies to disclose material news through traditional news outlets. Typically, that involves issuing a press release, which then gets disseminated over multiple outlets.
In the case of Netflix, the company argues that posting on Hastings' Facebook page, which has 200,000 subscribers, is public.
However, the post was on Hastings' personal Facebook page — not Netflix's page. And even if it was on Netflix's page, it could be argued that the company could and should have issued a press release simultaneously to disclose what turned out to be stock-moving news. Just as it could be argued that Tesla CEO Elon Musk should have been more careful with his Twitter post the other day on cash flow.
Posting material information on a CEO's personal social media page simply isn't fair disclosure — no matter how many people follow it.
Bottom line: I'm all in favor of social media as a point of dissemination. They aren't going away. But public companies and executives want to use them, and they have to play by the rules. That means, simply, issue a press release at the same time. Simple common sense, don't you think?
—By CNBC's Herb Greenberg