SEC Still Way Behind The Times In Dealing With The Way People Communicate

from the broken-regulations dept

Way back in 2006, Jonathan Schwartz, then the CEO of Sun, caused a ruckus at the SEC for doing the amazing thing of trying to disclose material news about the company on his blog. The SEC was concerned about this, because it massively over-regulates communications from public companies, specifically under Regulation FD (for "fair disclosure"). The issue is that information needs to be available widely at the same time so that no one has a particular advantage (i.e., you can't just reveal info to some big bankers on Wall St. who trade on it, and then release your press release later). But, in our over-regulated world, the SEC had to go through a long process before deciding that, in this modern digital world, perhaps these crazy "blog" things are okay.

We're seeing something of a repeat of the episode a little more than six years later, Netflix CEO Reed Hastings wrote on his Facebook account the news that Netflix users were watching "nearly a billion hours per month." The SEC decided that this might be material information that Hastings had dangerously shared in a new-fangled manner and this might violate RegFD. Amusingly, Hastings told the world about this... via Facebook.
SEC staff informed us yesterday that they are recommending that the SEC bring a civil action against us for my July 1 billion hour public post, asserting we violated “Reg FD”. This rule is designed to ensure that individual investors have equal access to information as large institutional investors, by prohibiting selective disclosure of material information. The SEC staff believes that I gave you all “material” investor information in my post and that we needed to instead release the June viewing fact “publicly” with an 8-K filing or press release.
Hastings points out that the whole thing is stupid. The Facebook postings are public and viewable by anyone with a Facebook account, and he already has 200,000 subscribers to his updates. Furthermore, he pointed out that the announcement itself had nothing to do with "material" information for investors, it was just cool news -- which had been blogged about a few weeks earlier anyway.

Hastings finds the whole thing so ridiculous (and it is) that he's promised to keep posting news to Facebook even as the SEC continues its "investigation." As he points out, the whole thing is more about SEC red tape than any reasonable regulation:
“Reg FD was about protecting me from telling Carl Icahn something special, the big investor, that not everyone else got,” Hastings said. “This was me talking to 200,000 Facebook followers; it is letting the small guy in on the information.”
It would be nice if our various regulatory institutions didn't react to any new technology by automatically dumping it into the "must be evil / most be stifled" category.

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  1. icon
    Gene Cavanaugh (profile), 9 Feb 2013 @ 10:48am

    Blogging to Facebook is illegal disclosure?

    Okay, if I can blog anything I want to for Facebook, I have a problem - either Facebook has a special status (YUK!) or I can blog to other blogs.
    So, I form a blog by invitation (several blogs do that), and in theory everyone can get an invitation. It happens, for some reason, that a few thousand people get access to (all HAPPEN to be major institutions, but hey - I can't help that!). I blog what would otherwise be regulated info.
    Anyone who then says I am violating the rules is "stupid", of course.

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