SEC Declines Enforcement Action in Netflix Reg FD Matter and Issues Social Media Guidance


On July 3, 2012, Netflix's chief executive officer, Reed Hastings, made a public post to his Facebook page, which noted that, in the month of June 2012, "Netflix monthly viewing exceeded 1 billion hours for the first time ever." Using Facebook's "subscription" feature, Mr. Hastings designated the post as "public," making it available to anyone on the Internet, including Facebook's more than one billion users as well as Mr. Hastings' 200,000-plus Facebook "friends" and subscribers. The post received extensive media coverage shortly after it was issued.

The Securities and Exchange Commission (SEC) investigated the matter. On December 5, 2012, the Enforcement Staff of the SEC issued "Wells Notices" to Netflix and Mr. Hastings, indicating its intent to recommend that the SEC bring an action for violations of Regulation FD, and allowing Netflix and Mr. Hastings an opportunity to respond.

On April 2, 2013, the SEC announced that it will not pursue an enforcement action in this matter. Instead, the SEC issued a Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934, providing guidance to issuers regarding the application of Regulation FD to disclosures made via social media. In the Report of Investigation, the SEC stated that (1) issuer communications made through social media channels require careful Regulation FD analysis comparable to communications made through more traditional channels; and (2) the principles outlined in the Commission Guidance on the Use of Company Web Sites, Release No. 34-58288 (Aug. 7, 2008)—and specifically the concept that the investing public should be alerted to the channels of distribution a company will use to disseminate material information—apply to corporate disclosures made through social media channels. The Report can be found here.

Wilson Sonsini Goodrich & Rosati served as counsel to Netflix and Mr. Hastings in connection with this matter. We anticipate that many of our clients will want to apply the SEC's guidance to expand the use of social media for meaningful communications with investors. Companies using social media should carefully consider how to alert the public of that use by, for example, using press releases, SEC filings, and/or investor websites to identify the specific social media channels they intend to use.

For more information about the application of Regulation FD to social media, please contact a member of the firm's securities litigation or corporate and securities practices.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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