Netflix, Inc. (NASDAQ:NFLX) and its Chief Executive Officer were issued Wells notices from the Staff of the Securities and Exchange Commission related to something Hastings posted on Facebook Inc (NASDAQ:FB) back in June.
Netflix revealed in its filing “On December 5, 2012, Netflix, Inc. (“the Company”) and its Chief Executive Officer Reed Hastings each received a “Wells Notice” from the Staff of the Securities and Exchange Commission (“SEC”) indicating its intent to recommend to the SEC that it institute a cease and desist proceeding and/or bring a civil injunctive action against Netflix and Mr. Hastings for violations of Regulation Fair Disclosure, Section 13(a) of the Securities Exchange Act and Rules 13a-11 and 13a-15 thereunder. A copy of a statement that will be made by Mr. Hastings to subscribers on his publicly available Facebook page is attached as Exhibit 99.1”.
The so-called Wells notice from the securities regulator warned that it could initiate enforcement action and gives the respondent an opportunity to make a statement about why such action is not appropriate. The SEC claims that post from Hastings violated the Fair Disclosure rule or Reg FD, which requires a company to announce information that is material to its business to all investors at the same time.
In June, CEO Hastings wrote on Facebook Inc (NASDAQ:FB) that the subscribers of Netflix, Inc. (NASDAQ:NFLX) were enjoying “nearly a billion hours per month”. The CEO said that the company did not issue any press release or 8-K filling about this. The intention behind posting such a message was to highlight the strong content and subscriber base of Netflix. The CEO believes that there was press coverage, as there are many reporters and bloggers from the media who are public followers of Hastings on Facebook.
On July 3rd Hastings posted a comment on Facebook, where he is followed by around 200,000 followers. In the posting, he gave praise to the company’s Chief Content officer, Ted Sarandos, for achieving a foremost landmark.
“When House of Cards and Arrested Development debut, we’ll blow these records away,” Mr. Hastings wrote, referring to the two television programs. “Keep going, Ted, we need even more!” Mr. Hastings seemed to mention the viewership statistics only in passing.
Regulation Fair disclosure is premeditated to prevent the exclusive release of important information to some investors, barring others from knowledge, which in turn may affect the price of the stock. The SEC adopted this rule 12 years back, and companies, from that time, were allowed to make an announcement through newspaper or regulatory filings. But the version of rule may be changing in the era of blogs, Facebook Inc (NASDAQ:FB) and Twitter.
“We remain optimistic this can be cleared up quickly through the S.E.C.’s review process,” Mr. Hastings wrote on Facebook, in a post that was filed with regulators.
Shares of Netflix, Inc. (NASDAQ:NFLX) were down by 1.3 percent in after-hour trading on Thursday, at $85.02.