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Apr 02, 2013

SEC approves communication with investors via social media

US regulator won’t pursue action against Netflix CEO over Facebook post on viewership number

Companies can use Twitter, Facebook or other social media platforms to communicate with investors, as long as they notify them ahead of time which network they plan to use, according to a statement by the SEC following a probe into communications by Netflix via its Facebook account.

‘Companies can use social media outlets like Facebook and Twitter to announce key information in compliance with Regulation Fair Disclosure so long as investors have been alerted about which social media will be used to disseminate such information,’ the SEC says in a statement concluding its investigation into Netflix.

The SEC said late last year that it was considering civil action against Netflix and its CEO Reed Hastings for violating public disclosure rules by posting viewership information of the video rental business on Facebook and not through its regular disclosure channels.

On July 3 of 2012, Hastings posted on Facebook that ‘Netflix monthly viewing exceeded 1 bn hours for the first time ever in June’. The Facebook post was available to almost a quarter of a million people, but the post was not accompanied by a formal press release.

When the SEC announced it was considering civil action through a Wells Notice, Hastings argued that his Facebook post didn’t affect the share price and didn’t disclose exclusive information.

‘First, we think posting to over 200,000 people is very public, especially because many of my subscribers are reporters and bloggers,’ Hastings wrote. ‘Second, while we think my public Facebook post is public, we don’t currently use Facebook and other social media to get material information to investors; we usually get that information out in our extensive investor letters, press releases and SEC filings.’

Hastings also said the company had blogged about serving nearly 1 bn hours per month weeks before the Facebook post and that information was not ‘material’ to investors.

The SEC says in its April 2 statement that it didn’t initiate an enforcement action or allege wrongdoing by Hastings or Netflix. There has been ‘uncertainty about the application of Regulation FD to social media,’ the commission adds.

‘Companies should review the commission’s existing guidance — it is flexible enough to address questions that arise for companies that choose to communicate through social media, and the guidance does so in a straightforward manner,’ says Lona Nallengara, acting director of the SEC’s division of corporation finance, in the statement.

The SEC clarifies that ‘although every case must be evaluated on its own facts, disclosure of material, nonpublic information on the personal social media site of an individual corporate officer — without advance notice to investors that the site may be used for this purpose — is unlikely to qualify as an acceptable method of disclosure under the securities laws.’