Netflix Receives Wells Notice from SEC

Published December 06, 2012

| Reuters

Netflix (NFLX) said securities regulators plan to take action against the company because of a Facebook post by Chief Executive Reed Hastings that allegedly violated public disclosure rules, even as Hastings dismissed the contention in a public letter to shareholders on Thursday.

"We remain optimistic this can be cleared up quickly through the SEC's review process," said Hastings, in the letter the company submitted alongside a regulatory filing announcing the receipt of a "Wells Notice" from U.S. Securities and Exchange Commission staff.

The notice informed Netflix that the SEC intends to bring a civil action against the company because of comments Hastings made on Facebook in July announcing that members of the online video streaming service were watching more than one billion hours of video a month.

Hastings said on Thursday that he did not believe the Facebook posting was "material" information.

The Wells Notice means the SEC staff will recommend the full commission pursue either a cease-and-desist action and/or a civil injunction against Netflix and Hastings over the alleged violation.

The point of contention is a July 3 post on Netflix's public Facebook page, which was accessible to more than 244,000 subscribers to the page.

"Netflix monthly viewing exceeded 1 billion hours for the first time ever in June," Hastings wrote in the post. According to Hastings' letter Thursday night, the SEC believes that figure is material information that should have been disclosed in a press release or regulatory filing.

"First, we think posting to over 200,000 people is very public, especially because many of my subscribers are reporters and bloggers," Hastings said Thursday.

Netflix shares fell 1.4 percent to $85 in after-hours trading.

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