On April 2, 2013, the Securities and Exchange Commission, in Release No. 69279, issued a 21(a) report on its investigation into certain social media publications by Netflix and its Chief Executive Officer, Reed Hastings. On July 3, 2012 Mr. Hastings used his personal Facebook page to release information about Netflix performance numbers. The commission investigated this disclosure to see if Regulation FD or the Commission's August 2008 Guidance on the Use of Company Web Sites applied to the post. Ultimately, the SEC determined that disclosures (no matter what form they take) to persons enumerated in Regulation FD must comply with Regulation FD and that all entities must "take steps sufficient to alert investors and the market to the channels [they] will use for the dissemination of material, nonpublic information."
This matter is significant for at least two separate reasons. First, it shows that the SEC is aware of and willing to delve into the social media aspects of modern day corporations. This is one of the first instances in which the SEC has spent considerable time analyzing the potential repercussions of the use of social media for company announcements. The fact that the SEC issued a rare Rule 21(A) report to Netflix rather than actually prosecuting the company for potential rules violations could be considered a tacit acknowledgement that regulation in this area is far from set in stone.
Second, the findings in the Netflix Rule 21(a) report will require any corporation using social media as a channel for business reporting to take steps to ensure compliance with the rule. Such companies will likely find themselves in a position of having to establish internal regulations to control what information is disseminated through social networks. Similarly, the company will need to set up internal controls to ensure that its regulatory reporting to shareholders and state, federal and self-regulatory organizations includes proper notice of the company's intent to use such channels.
For more information please visit the SEC's website, here: SEC Netflix 21(a)