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TheStreet Open House

The Five Dumbest Things on Wall Street This Week: Dec. 14

5. Netflix Nuttiness

Forgive us for being a little late to the party, but we just wanted to weigh in on Netflix's (NFLX) Wells notice before CEO Reed Hastings ditches this shindig and dons a lampshade at another bash.

After the market's close Dec. 6, the ever-entertaining Hastings revealed he received the SEC warning for making a Facebook (FB) post this past summer that purportedly ran afoul of Wall Street's Fair Disclosure Act. The regulator will now decide whether to proceed with a civil injunction against Netflix and Hastings over the alleged violation.

Hastings wrote July 3 that "Netflix monthly viewing exceeded 1 billion hours for the first time ever in June." And while that may seem like yet another one of Hastings' run-of-the-mill, run-of-the-mouth pronouncements, the government viewed it quite differently. The SEC said Reed's self-congratulatory comment was, in fact, material information that must be distributed publicly, or at least more publicly than a Facebook posting, so as not to give some Netflix investors an edge over others.

So was Reed not right in divulging the arguably material information despite it being on a massive social network? Or were regulators wrong for being overzealous in their attention to detail?

Yes, it really is a true conundrum for the digital age. Here's how we see it.

First of all, Hastings should not have snottily dismissed the government's claim by responding to the charges last week with yet another Facebook post saying, "We think posting to over 200,000 people is very public, especially because many of my subscribers are reporters and bloggers."

Dude, don't you ever learn? If your first missive pissed them off, why on earth would you follow it up with an even more obnoxious one? There is no good reason to antagonize these people. They are government employees and get paid according to scale. Money does not motivate them. Spite, as we saw in the Martha Stewart trial, does.

So get righteous, Reed. Bow to the higher power and be done with it.

That said, we do feel that the SEC is acting a tad too fervently on this particular matter. Social networks are relatively new to the investor mix, and blowhards like Hastings may not yet know the boundaries of what is and what isn't legal. We know full well that the SEC's sleuths will be spending the rest of their lives trying to make up for missing Madoff, but this type of nitpicking certainly is not the answer. In fact, it will only make things worse for the organization should something far more sinister pop up while they are busy crashing this fairly uneventful affair.

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