GO
Loading...

Why the SEC Is Right to Nail Netflix

Getty Images

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.

(Read More: Is Facebook Fair Disclosure? The Future of CEOs on Social Media)

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

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

Disclaimer

Symbol
Price
 
Change
%Change
JPM
---
FB
---
TSLA
---

Featured

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Senior Commodities Correspondent and Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.