A shareholder in Netflix is taking legal action against the video streaming and rental site, claiming it made “materially false and misleading statements” about its business practices and its contracts with content providers. They allege the statements meant investors were caught out by a major share price declines last year.
The suit lodged in Northern California, alleges that the defendants, the company’s top executives, including CEO Reed Hastings, concealed “negative trends in Netflix’s business.” It also claims that between December 2010 and October 2011, Netflix’s stock traded at “artificially inflated prices” and that during that time “company insiders” sold more than 388,000 shares, netting proceeds of $90.2 million.
The main allegation is that Netflix didn’t reveal it had short term contracts with many content providers that it must have known would demand much higher prices in imminent renegotiation.
Over the period, Netflix’s shares hit a peak of almost $300 per share last July, but fell sharply towards the end of last year. In September, Netflix’s shares dropped by almost $40 in one day after the firm revealed in a Q3 guidance statement that it had lost one million subscribers following subscriber price increases. Shares closed at just under $170 per share.
The share price fell to $130 after Netflix announced its later abandoned plan to spin off its US DVD-lending business into a separate company called Qwikster.
The lawsuit names the City of Royal Oak Retirement System in Michigan as plaintiff but said it was brought on behalf of all purchasers of Netflix securities during the given period. Other interested parties have until March 13th to join a class action.