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Back in July, Reed Hastings publicly posted to his Facebook account, which over 200,000 people subscribe to, that Netflix members had watched over 1 billion hours of content in June. While the company did not issue a press release or file an 8-K regarding this news, it was covered on several blogs and sites.

Despite this information being wide spread, the SEC staff informed Netflix yesterday that they are recommending that the SEC bring a civil action against them for Reed Hastings’ post back in July about 1 billion hours of content being watched on Netflix. The reasoning behind the action by the SEC is that Reed and Netflix violated “Reg FD” — a rule that is designed to ensure that individual investors have the same equal access to information as large institutional investors, by prohibiting selective disclosure of material information.

What’s going on here is that the SEC staff believes that Reed’s post gave his subscribers “material” investor information that should have been released “publicly” with an 8-K filing or press release.  In other words, they are concerned that people could have made capital gains off “insider information,” which is illegal.

This is an interesting situation, what number of people being made aware of information is enough for it to be considered public? Is a post to 200,000 people and coverage on several websites public enough? I guess we will find out.

We’ll have more on this story as it develops…

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