Netflix (Nasdaq:NFLX) CEO Reed Hastings is huddling with lawyers over the SEC Wells notice which raises the issue of just what is fair disclosure and what are the best practices for Reg FD. So this is what Reed Hastings did about 90 days ago. On a Facebook page (Nasdaq:FB) he posted that Netflix had reached a billion hours of viewership and congratulated a key marketing executive in reaching the symbolic milestone.
The SEC is alleging the billion hour milestone should have been announced as a material event so that everyone would know. I’m told Reed Hastings has a 200K plus following on his Facebook page. So while a press release was not officially filed with the SEC no one can say this was a secret tidbit shared with a few special friends. If you followed Facebook as an investor you probably friended him. If you were an investor who followed an internet investment without internet tools than you are stupid and no amount of regulation will help you.
Officially Reg FD is designed to allow the general investing public the same access to information as a few insiders or powerful institutional investors. Hard to argue with the intent. So Reg FD compliant tools make sure you have mass dissemination of information onto the financial press and trading terminals such as Bloomberg.
Facebook is new. Twitter is new. Other stuff will be newer. Provocatively they may be more efficient than all the old tools put together. They are called disruptive technologies.Right now if you post a twit with a $ and the corporate stock symbol you will usually link to stock twits and share your idea. Real time. Inexpensive. Open to big and small investor. Social media links back and forth. Investors retwit and relink and repost at will.
The Wells notice while serious is more an indictment of the SEC. They have a regulatory responsibility and they may have been overwhelmed with advances in technology. Not good I say.
A Machiavellian part of me wonders why this Wells notice was filed during an inter-regnum period at the SEC. Perhaps some diligent staffers tired of no real direction used the tools at hand to explore the boundaries of the regulatory framework.
The new SEC chairperson may be faced with a judicial fait accompli. Or maybe a runaway case file that needs to be considered more rigorously.
In any event it is highly unlikely that Reed Hastings will be found guilty of any form of malfeasance. The financial press has already pointed out the powerful arguments that investors assumed NetFlix was close to the milestone and that sell side analysts had published public commentary assuming the milestone was at hand. So when Reed Hastings said we got there is was not truly material.
The SEC will find a backdraft if they chose to not pursue the Wells notice. The investment community closely followed be a predatory litigations community will want to know how social media is to be incorporated. And while we’re at it why can’t a CEO say something on his Facebook page or Twitter feed. Chances are it will be less varnished than starchy corporate communications and therefore more genuine and therefore more useful and therefore more engaging and therefore a better trust building tool.
Hey that stuff should be pretty good. Lets try it SEC.
I do not know Reed Hastings personally. but those of you who do should buy him a beer because he is taking one for the team.
George Gutowski writes from a caveat emptor perspective. Follow him on twitter@financialskepti