THE BLOG
12/10/2012 01:35 pm ET | Updated Feb 09, 2013

What Constitutes Public Disclosure?

What constitutes public disclosure?

If you send an email to a friend -- is that public?

If you blog and have a limited audience, like maybe just your mother -- is that public?

If you post on Facebook -- does the post alone make it public?

These are not trick or facetious questions; on the contrary, I think that they are important questions and touch on future privacy issues and force us to take stock of what's real and what's not -- and in fact, are questions that have now entered the legal realm and could have a huge impact on our ever-growing social world.

What caught my eye, and hence my imagination, was a report that the SEC -- the Securities and Exchange Commission of the United States, who among other things are tasked with overseeing how publicly traded companies communicate about their company activities so as not to give unfair advantage to any one set of investors -- was considering filing a civil action against Netflix for a post Netflix made on Facebook.

Here is the story: Public companies are required to release important information to all investors at the same time. Seems reasonable. In the past a company would issue a press release and file with the SEC at the same time. One imagines that the press release got distributed to a list of publications and distributors, who then shared and published said release and this constituted "at the same time" for the SEC.

Here is what happened:

On July 3, Netflix posted on Facebook a message from CEO Reed Hastings, which reported that for the first time ever Netflix members had watched more than one billion hours of video. Important news if you are an investor: The post was to more than 200,000 Facebook friends of Netflix, received 250 "Likes" and was shared 30 times. Netflix did not issue any press releases or file any documents.

Now I don't want to discuss what I consider paltry numbers. That's for another time (our benchmarks are really low). What is important is what the SEC said next.

Bottom line, the SEC issued a warning of their intention to file civil charges against Netflix for violating Regulation Fair Disclosure, the rule banning the selective release of material information.

You can't make this stuff up.

In a world where every business is consumed with how to leverage and deal with the ever- exploding world of digital social communication -- where the true power of "Digital Exponential" comes into play -- the SEC believes that a post on Facebook constitutes full coverage and open access?

Truth is, imagine how Facebook must feel. If I read this and was a Facebook investor, I'd worry about the viability of my investment. After all, the SEC just declared it a "non-public" forum, in fact, maybe even worse if you think about it.

Now as an investor I might wonder about the 250 "Likes" and 30 "Shares," but as I said, that is another story.

So there you have it -- a fable for our time -- the envy of all social aggregators facing legal pigeonholing as a non-important way to share information. Hmmmmmmm.

On the other hand, maybe we should stop and think a moment. Listen to the words of Jonathan Swift: "It is the folly of too many to mistake the echo of a London coffee-house for the voice of the kingdom."
Swift, another of my favorites, lived some 300 years ago and was already wrestling with the issues of social discourse that get amplified by artificial means and often out of context.

I wonder what he would say today.

I wonder what you have to say.

What's your view?