Netflix Hit With Class-Action Suit Over Stock Plunge

According to court filings, top executives at the subscription service propped up the share price and unloaded $90.2 million at a high

Netflix’s stock has suffered a much-publicized nosedive in recent months, and now a group of shareholders is hitting the subscription service with a class action suit.

Filed in U.S. District Court for the Northern District of California, the suit alleges that the home entertainment company gave false and misleading statements about its business practices and contracts with studios that propped up its share price.

Also read: Netflix Analyst: 'I've Never Seen a Company Behave This Randomly'

Netflix executives sold 388,661 shares of their own Netflix stock while the stock was at a high, netting $90.2 million, according to the complaint.

“Later, when the defendants’ prior misrepresentations and fraudulent conduct became apparent to the market, the price of Netflix common stock fell precipitously, as the prior artificial inflation came out of the price over time,” the suit reads.

Netflix Chief Executive Officer Reed Hastings, Chief Financial Officer David Wells, Chief Content Officer Ted Sarandos, Chief Marketing Officer Leslie Kilgore, and Chief Product Officer Neil Hunt are named as defendants.

The plaintiffs seek unspecified damages and attorney’s fees.

A spokesman for Netflix did not immediately respond to requests for comment, nor did Darren Robbins, an attorney for the plaintiffs.

Before Netflix instituted a 60 percent price increase to its most popular subscription platform and launched an aborted plan to spin off its DVD-by-mail arm into a separate company called Qwikster, the company’s stock was trading at $300. Despite abandoning the scheme to spin off its DVD business and apologizing to customers, Netflix announced that it had lost nearly 1 million subscribers during its most recent quarter. 

Markets were closed for the Martin Luther King holiday on Monday, but shares of the company were trading at $94.38 in after hours trading on Friday.

The lawsuit claims that Netflix knew that it had short-term contracts with the studios that provided it with films and television shows to stream. It also knew that those pacts would have to be renewed at a substantially higher cost, necessitating its price hike, according to the suit.

The suit claims that despite their public statements, Netflix executives knew that it would not meet its earnings forecasts, allowing them to sell shares at a high price.  

Pamela Chelin contributed to this report.

  • KISSman

    This lawsuit is as silly as people suing McDonald's for spilling hot coffee on themselves.

    The stockmarket is just another form of gambling and in this case, if you weren't smart enough to sell before the Netflix bubble burst, that's on you.

    It was obvious that Netflix's stock price had soared to a figure that couldn't be justified, but investors certainly weren't complaining about that.  But it became clear how out-of-whack their stock price was when just one mistep sent Netflix's stock right into the toilet.  That's just the risk of investing in any company.

    Enjoy your steaming hot cup of fail, cry-baby Netflix investors.

    • Mitchsmith62

      The suit is hardly silly. If you, as an officer of the corporation, have information you knew in advance that would cause to an adverse affect on the stock, that was not available to other stockholders and you act on that information by dumping your stock, its called Insider Trading. Of course KISSman (one of the 10%, I suppose), I am sure you find nothing wrong with that. 

      • CoservativeThinker187

        So true….If there is evidence of this, Those hi level executives should be doing 10 to 20 years….

    • Nightryder

      I believe the little old lady who sued McDonalds won. And you further your comment Kissa*s?

  • tree

    i don't think that Netflix told anyone they were going to be charged sixty percent more for their subscriptions, even though they knew it was going to happen. All of those people dumping their subscriptions simultaneously was a major contribution to the stock plummet, and it's shady that so many executive shares were sold at the last minute. Sounds like fraud to me.

  • Someone

    If the execs are dumping their options then they probably have no intention of fixing things and are looking to sell to one of the media giants.  After that happens, you'll be wishing for the days of the $16 flat rate.

  • Nightryder

    Still, everybody is shaking their heads to the degree of stupidity these morons at Netflix made.