U.S. Attorney Jim Letten resigns amid online commenting scandal in his office
Amid a metastasizing scandal in his office, U.S. Attorney Jim Letten announced his resignation at a news conference Thursday morning, ending an 11-year run in the post.
The troubles for Letten began in March, when landfill owner Fred Heebe -- the target of a sprawling federal probe -- filed a civil lawsuit alleging that prosecutor Sal Perricone had been using an online alias to savage him and other federal targets in comments posted at NOLA.com.
Perricone, the office's senior litigation counsel and a member of Letten's inner circle, quickly admitted his sins and resigned. The matter was referred to the Justice Department's Office of Professional Responsibility for investigation, and the scandal seemed to die down.
In an interview with New Orleans magazine published in August, Perricone insisted the commenting brouhaha started and ended with him, saying no one else in the office had been aware of his activities.
But last month, the scandal reignited with a vengeance, when Heebe filed a second defamation suit, this one claiming [Letten's longtime First Assistant, Jan] Mann had been commenting about federal targets and judges as "eweman" on NOLA.com. Many of the comments by "eweman" were adjacent to comments made by Perricone under one of his online aliases, suggesting a coordinated campaign.
Mann soon admitted she had commented online at NOLA.com, but did not cop to a specific alias.
[Judge] Engelhardt ... issued a stinging order in late November in which he essentially accused Mann and Perricone of untruthfulness.
In particular, the judge was upset by a letter Mann sent him in October in which she wrote: "Prior to the Perricone incident, I was not a follower of NOLA.com postings and had no real sense of what was happening there."
And then there's Netflix Gets Wells Notice Over CEO Hastings’ Facebook Post
Netflix and CEO Reed Hastings both received Wells Notices from the SEC, according to a filing this afternoon related to something Hastings wrote on Facebook back in June.
Shares are taking it pretty well. The stock is down only about 1.5% in late trading, at $84.85.
A Wells notice is a notification from a securities regulator that it intends to recommend enforcement action and affords the respondent an opportunity to explain why such an action is not appropriate.
Back in July, Hastings wrote on his Facebook page that Netflix users had streamed more than 1 billion hours of video in June. The SEC is apparently looking into whether or not that violates fair-disclosure rules.
What's this about?
Well, there's an SEC regulation known as Regulation Fair Disclosure ("FD"). It was passed in 2000, to prevent what was then a prevalent practice of corporations leaking inside "scoops" about their business to favored market analysts, who then used their inside information to make stock recommendations. The whole thing became incredibly manipulative during the whole dot com bubble, when these market analysts purported to rely on proprietary information to cheer favored stocks (i.e., the ones their employers did business with), and then there was a big tech stock crash, so the SEC passed Reg FD, which basically says that if the company gives material information to someone, it has to give it to everyone - no more selective leaks.
There's a fairly regimented mechanism by which companies release new information to the public. They file it with the SEC - and those filings are available electronically - and they use particular forms for particular types of information. Generally, if new information comes up suddenly, it's released on Form 8-K.
At the same time, as we all know, most companies now maintain a Facebook page, where they post little PR updates. Which is what happened when Netflix's CEO posted this:
Congrats to Ted Sarandos, and his amazing content licensing team. Netflix monthly viewing exceeded 1 billion hours for the first time ever in June. When House of Cards and Arrested Development debut, we'll blow those records away! Keep going, Ted, we need even more!
Netflix's Facebook page has over 200,000 followers - many of whom are reporters and bloggers. And they picked up the story and Netflix's stock price rose. But Netflix never formally issued a press release, and it did not file any 8-Ks with the SEC.
In response, the SEC just issued a notice indicating that it intends to bring a civil action against Netflix and its CEO for violating Regulation FD. Now, it sounds like the SEC doesn't intend to ask for any monetary penalties - it only wants to issue a C&D order or a civil injunction, so Netflix won't take much of a hit - but, it still raises eyebrows.
On the one hand, Netflix's position is - our Facebook page has 200,000 followers! How much more public do you need?
But I assume the SEC's position is something like - if you're an investor looking for information about Netflix, you might reasonably want to go only to official sources of info - SEC filings, press releases, that sort of thing. You wouldn't necessarily expect relevant information to be released on a Facebook page. And that would mean you'd be at an unfair disadvantage when trading - especially since people can trade on new info very, very quickly. The difference may only be for a few minutes, but that's enough.
But on the third hand, lots and lots of companies have Facebook pages and blogs and the line between "cute bit of positive PR" and "material information that should have been filed with the SEC" might be hard for them to navigate, especially given the informal nature of blogging.
But on the fourth hand, what if Netflix had used its Facebook page to announce its quarterly earnings, which is a major piece of market moving information? Or even something more drastic, like an impending merger or bankruptcy?
So, it's a quandary.