Class-action Lawsuit Filed Against Netflix

16 Jan, 2012 By: Erik Gruenwedel

---

Legal action taken in response to company’s PR gaffes and precipitous stock fall last fall

A San Diego law firm has filed a class-action lawsuit against Netflix alleging that select officers and directors of the streaming service enriched themselves while misleading investors during a 10-month period last year.

The suit — filed on behalf of an institutional investor Jan. 13 by Robbins Geller Rudman & Dowd LLP in United States District Court for the Northern District of California — alleges that unnamed Netflix executives from Dec. 20, 2010, to Oct. 24, 2011, issued “materially false and misleading statements” to investors about the company’s business practices and content license agreements, in order to main an artificially high share price.

Indeed, Netflix shares reached an all-time high of nearly $300 a share on July 13, 2011. Meanwhile, the aforementioned executives and directors together sold more than 388,000 shares of common stock for more than $90 million.

Specifically, the complaint alleges the Netflix defendants knew — but hid from investors — the fact its burgeoning subscription video-on-demand service’s short-term content license agreements were coming up for renewal at higher-than-anticipated rates. The increased renewals necessitating a price increase to subscribers, thereby threatening Netflix’s fiscal earnings forecasts.

Los Gatos, Calif.-based Netflix’s implosion last October is well-known. The company saw shares free-fall more 75% in October and November, after implementing a price hike to its most popular hybrid disc and streaming rental program. Netflix then aborted a short-lived attempt to spin off its pioneering by-mail disc rental service, dubbed Qwikster — a PR fiasco further undermined by a poorly received mea culpa from co-founder and CEO Reed Hastings.

The law firm seeks to recover unspecified damages on behalf of all purchasers of Netflix common stock during the aforementioned period.

Separately, two Dallas-based law firms have opened an inquiry into the litigation to determine whether Netflix executives and board members failed in their respective fiduciary duties.

“Because of the severity of the accusations lodged against certain of Netflix's officers and directors, we are concerned about the possible damage to the company and its shareholders, and the firms have commenced an investigation to uncover possible breaches of fiduciary duties and other violations of state law by the officers and directors,” Willie Briscoe, shareholder rights attorney with one of the law firms, said in a Jan. 16 statement seeking additional plaintiffs.

Netflix, as a rule, does not comment on pending litigation and/or market speculation.

Bookmark it: