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Business Litigation Alert: "Facebook Alert! - Social Media Sparks SEC Investigation"

Once again, social media has landed a corporate executive in hot water.

This time it is the CEO of Netflix, Reed Hastings. He is currently under investigation by the SEC for company information he posted on his Facebook page – that Netflix customers were viewing more than 1 billion hours of video each month.

Although Hastings’ post was widely reported, leading to a 6% jump in stock the day it was posted, the SEC is concerned that the post does not satisfy federal fair disclosure rules which require companies to make material information available to all investors at the same time, usually through the company’s website, a formal press release, or an SEC filing.

As a result, the SEC sent both Hastings and Netflix a “Wells Notice,” indicating that the SEC might bring an injunctive action against both.

Netflix has argued that Hastings’ Facebook page is a public forum due to the fact that he has over 200,000 followers – but, as of now, there is no official rule stating that social media posts are an acceptable forum for distributing material company information

So how can other companies avoid the same fate?

  1. Play it safe. Any information that could be considered material to shareholders should first be disclosed in an SEC filing, posted on the company’s website or issued in a press release.
  2. Put it in writing. Your company’s social media policy should clearly state that no company data be posted or tweeted until it has first been disclosed appropriately.
  3. Control the distribution of information. Until it has been properly disclosed, make sure only those who need to know have access to any information that could be material to shareholders.

Social media will continue to be an issue for companies as the rules governing what can and cannot be posted continue to evolve. The best tactic in attempting to navigate this uncertain area of the law is to “Disclose First, Post Later.”

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