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.
Filed Under: communications, public communications, reed hastings, regfd, sec
Companies: netflix
Comments on “SEC Still Way Behind The Times In Dealing With The Way People Communicate”
I can see the conversation now.
SEC: “What is this face book? You, intern, go check out a copy from the library.”
Intern: “You can’t borrow Facebook from the library.”
SEC: “Sue them.”
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Actually any new media is a threat to old school stock trading. In them olden days SEC had to be very careful about disclosure of information to avoid insider trading or situations getting near that. When new media is used everybody with a computer has the potential to find the information, but unless it goes through stock exchanges very fast thereafter short term trading will have an information imbalance and those with a strong knowledge of the technology will get an advantage.
The problem has been dwarfed by automatic systems like HFT and LLT. Errors in those systems can completely crash the system and bankrupt the owner of the algorithm bigtime.
Ironically LLT is making financial hedgers like Goldman Sachs into researchers and developers of better connections and information gathering… Only problem is the availability of this research since business models cannot be patented. The research is therefore trade secrets, making it a horrible platform to encourage r&d on, just like many other patentable areas.
LLT can easily be removed from the system by stock exchanges and in Europe several countries have done so, but for some reason SEC is completely oblivious to the stupidity and possibility for untraceable fraud in LLT.
Because Facebook for a variety of reasons bans people from using their service and requires the agreement of a one-sided legal contract, it is not a forum truly open to the public.
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Bingo. It’s “truly open” to the portion of the public with little concern for privacy.
Although, that’s probably a tautology.
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While that number does drop every day, I suspect those that even know to look for the 8-K filing or see any publicity.
While I get your point, I am betting the difference in audience numbers between the FB numbers and those that look for 8-k is tiny.
Re: Re:
it is not a forum truly open to the public.
Facebook is far more open than many of the previous ways companies would release this type of information.
How many people are on the distribution list for press releases? And think about prior to email – how many individuals had access to wire services without a newspaper or other media outlet telling them what came across it? Investor/analyst conference calls were for years relatively closed – small investors were not allowed to join, and in the few cases they were, they certainly couldn’t ask questions.
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A large number of people is not the same as public. Facebook creates an exclusion. A site that does not require login to read is public, Facebook is not public it requires login. Facebook is a private walled club.
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Facebook is a private walled club.
I don’t disagree – I don’t have a Facebook account and don’t want one, so there’s stuff behind that wall I don’t have access to. My point is that other methods the SEC has been okay with releasing similar information are far, far more restrictive than Facebook.
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Wrong.. you can read group and individual facebook pages without loging in if they are set up to be publicly viewable. Therefore they become world viewable.
Though it’s interesting to note that NOT everyone has the same access to the filings unless they REGISTER!!!! Not everyone has the access to the press release unless they PURCHASE the paper (or purchase a paywall subscription)
Can you see the problem and hypocrisy?? Also being 200,000 people subscribed (and not just looking publicly) means they would have specifically more stakeholders viewing each release than could be verified by older methods.
This is basically about the large investors NOt having the same sort of ‘old world’ access that they are used to, it has nothing to do with the small investors and never has. Now that the floor has shifted to a more equitable system the old firms are basically pissed off that there golden goose’s are not laying ONLY for them.
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Wrong you don’t need to PURCHASE a newspaper, they are at your public library and therefore you know public. Funny never seen a Facebook on the library shelf next to the newspaper though.
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the computer is probably sitting next to the newspaper desk, at the library, so… whats your point?
dont need to purchase anything to use a computer at the library, either, do you?
sounds just as public as the newspaper, by your logic. (you started with the logic, not me)
Facebook not truely public
I think the anonymous coward beat me to it…
Facebook isn’t exactly “public” if non-facebook members can’t see it.
For example, I don’t have a Facebook account….
Re: Facebook not truely public
Re: Re: Facebook not truely public
True for http://www.facebook.com/netflix but http://www.facebook.com/reed1960 is all locked up behind a login.
typo in last paragraph
“must be evil / most be stifled”
should be
“must be evil / must be stifled”
‘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.’
it would be nice if other institutions, industries, companies, governments, uncle Tom Cobbly etc ‘didn’t react to any new technology by automatically dumping it into the “must be evil / most be stifled” category.’ perhaps we as a race of inquisitive sharers would be able to advance further, quicker and more completely than we are under all the restrictions
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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.
Re: Blogging to Facebook is illegal disclosure?
Other traders, bloggers, and journalists — not institutions at all but guys at home in front of a screen — all get access, and they echo the information very quickly on their blogs, twitter feeds, and so forth.
Or access is actually restricted, or costs $500/year, or they don’t have the bandwidth, and then you can’t give it to them.
Re: Blogging to Facebook is illegal disclosure?
Of course a newspaper such as WSJ, FT, FAZ and so forth can cost $200/year or more.
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