Is Netflix’s CEO a Crook?

Netflix (NASDAQ:NFLX) announced that the company and its Chief Executive, Reed Hastings, face scrutiny from the Security and Exchange Committee for Facebook posts made on Hastings account this past July.

“On July 3 Hastings wrote on Facebook that monthly viewing on Netflix had exceeded 1 billion hours in June. The SEC says that is material investor information that must be disclosed in a regulatory filing or press release,” reports Yahoo Finance. “The SEC sent ‘Wells Notices,’ giving Netflix and Hastings a chance to argue why the agency should not take action against them.”

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The post was made July 3 of this year, and the stock jumped 13.4 percent on July 5.

CHEAT SHEET Analysis: Does Honesty Govern Netflix’s Behavior?

A core component of our CHEAT SHEET Investing Framework focuses on whether a company’s management is trustworthy and, in this case, Hastings passes the test. In a response to the SEC’s assertion that he violated “Reg FD,” Hastings posted on his Facebook page (yes, again) that, “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.”

He then goes on to note that his Facebook page has over 200,000 subscribers, all of whom had access to his post. Hastings also points out that Netflix had blogged a few weeks earlier about approaching 1 billion hours of viewing in June.

While it may have been unwise to post such a critical announcement over Facebook—not to mention using the same platform to respond to the SEC’s notice—Hastings clearly wasn’t trying to pass along insider information. His attitude towards the SEC may be too blasé for some investors, but Hastings isn’t a crook.

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