News Column

Netflix Case Leads to SEC Social Media Ruling

April 3, 2013

Brandon Bailey

In an era when people share all kinds of news on social media -- from their dating status to what they had for breakfast -- it's perfectly fine for publicly traded companies to disclose significant financial information on Twitter or Facebook, the Securities and Exchange Commission said Tuesday.

But after examining Netflix (NFLX) CEO Reed Hasting's decision to announce a corporate milestone on his personal Facebook page last year, the SEC warned that it's

only fair to share important information through such channels if a company has told investors where to look for it.

Netflix hadn't done that, the commission said, but officials added that they won't penalize the company or its CEO because there has been uncertainty about the rules.

The SEC had already ruled in 2008 that companies could share information on their corporate websites or official blogs. The agency on Tuesday characterized the Netflix decision as an extension of its earlier ruling. But Santa Clara University law professor Eric Goldman said the new finding recognizes social media as an important source of information, especially for small investors who may not be able to attend financial "road show" meetings or

conference calls that are generally open to institutional analysts, major investors and sometimes the press.

"Social media has leveled the playing field," said Eric Goldman, director of the university's High Tech Law Institute.

Hastings drew the SEC's attention when he posted on his personal Facebook page that Netflix had streamed more than 1 billion hours of Internet video last June. The company had previously cited streaming volume as an indicator of its business strength, the SEC said. But Netflix, based in Los Gatos, did not share that particular milestone in a news release or on other public channels, such as the company's website or its official Facebook page.

That wasn't fair to investors who might not have known to watch Hastings' personal Facebook account for relevant information, the SEC said. The agency said companies should provide "appropriate notice to investors of the specific channels" the company plans to use for sharing news.

While the agency didn't go into details, Goldman said the ruling suggests a company can share information on a public account, but it wouldn't do for a CEO to use Facebook's privacy settings to share significant information only with "friends."

"Most social media are perfectly suitable methods for communicating with investors, but not if the access is restricted or if investors don't know that's where they need to turn to get the latest news." said George Canellos, acting director of the SEC's Division of Enforcement.

In a statement, a Netflix spokesman said, "We appreciate the SEC's careful consideration and resolution of this matter."


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Source: (c) 2013 the San Jose Mercury News (San Jose, Calif.) Distributed by MCT Information Services


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