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Originally published Thursday, December 6, 2012 at 10:00 PM

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Netflix CEO’s Facebook post catches SEC’s eye

Netflix disclosed that the Securities and Exchange Commission is considering taking action against the company and Hastings for its Facebook communication. The agency, in a “Wells notice,” warned that it may file civil claims or seek a cease-and-desist.

The New York Times

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Reed Hastings, the chief executive of Netflix, congratulated his team for a job well done in early July. On his public Facebook page, he crowed about the 1 billion hours of video that subscribers watched the previous month. The message was just 43 words.

Now, Netflix and its chief may be in deep trouble for that brief post.

On Thursday, Netflix disclosed that the Securities and Exchange Commission (SEC) is considering taking action against the company and Hastings for its Facebook communication. The agency, in a “Wells notice,” warned that it may file civil claims or seek a cease-and-desist.

The SEC is concerned that the post violated the Regulation Fair Disclosure rule, commonly known as Reg FD, which requires a company to announce information that is material to its business to all investors at the same time.

A Wells notice signals that investigators plan to recommend charges against a company or executive. But recipients have a chance to object back, and in some instances, the agency will close the case without taking action.

The move by the SEC comes at a difficult time for Netflix, which has been trying to regain its footing after a series of setbacks. The company’s plan to cleave its movie-rental service into online streaming and mail delivery of DVDs led to a subscriber revolt last year. In October, the activist investor Carl C. Icahn took a 10 percent stake in the company, though he hasn’t outlined his plans.

Shares in Netflix were down 1.3 percent in after-hours trading Thursday, at $85.02.

“We remain optimistic this can be cleared up quickly through the SEC’s review process,” Hastings wrote on Facebook, a post that was filed with regulators. A spokesman for Netflix declined to comment beyond Hastings’ post. A spokesman for the SEC declined to comment.

On July 3, Hastings dashed out a quick Facebook post to his more than 200,000 followers. In it, he gave kudos to Netflix’s chief content officer, Ted Sarandos, about hitting a major milestone. “When House of Cards and Arrested Development debut, we’ll blow these records away,” Hastings wrote, referring to the two television programs. “Keep going, Ted, we need even more!” Hastings seemed to mention the viewership statistics only in passing.

In the usual social-media fashion, the post was forwarded by his followers. Bloggers picked up on it. Media reports cited it.

Regulation Fair Disclosure is intended to prevent the selective release of important information to some investors, depriving others of knowledge that would affect a company’s stock. A pharmaceutical company, for instance, can’t restrict news about a government investigation into one of its drugs to only a handful of shareholders.

Hastings’ main defenses is likely to be that the age of social media has redefined the concept of public disclosure. His Facebook feed is public, and the information was disseminated by his followers and the media.

It’s also possible that Netflix didn’t view the information as material. Hastings noted that on June 4, a Netflix vice president wrote on the company’s corporate blog that subscribers “are enjoying nearly a billion hours per month of movies and TV shows” from the service. While Netflix’s stock rose on July 3, it was already getting a boost from a positive analyst note published the night before, Hastings wrote in Thursday’s post.

“We use blogging and social media, including Facebook, to communicate effectively with the public and our members,” Hastings wrote Thursday.

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