D&G Law

Social Media and Securities Litigation

Donaldson & Guin, LLC - securities fraud litigation blogCompanies regulated by the Securities and Exchange Commission may have to examine their use of social media. The SEC recently sent a Wells Notice to Netflix concerning a statement made by its CEO, Reed Hastings, on his Facebook page. Allegedly, Hastings commented that Netflix customers watched over one billion hours of streaming video in June 2012.

The SEC’s Ref FD (Regulation Fair Disclosure) prohibits public companies from releasing material information to a select group of investors before disclosing that information to the public at large. This rule attempts to prevent small groups of investors from benefiting from material information about a company before the general public. Even though Hastings’ Facebook page is public and has over 200,000 followers, including members of the press, the SEC apparently views Hastings’ comment as a selective disclosure pursuant to the rule.

While the SEC will have a fight on its hands regarding both the materiality of Hastings’ statement and causation with respect to Netflix stock’s subsequent bump in price, in the future, it will be interesting to watch the SEC’s regulation of statements made on social media outlets by publicly traded companies. Plaintiffs’ securities lawyers should take note of such developments when examining public disclosures by companies via social media.