Class action suit claims Netflix misled investors to bump share price

Summary:A class action suit claims that Netflix executives not only misled investors regarding the state of the streaming business, but also cashed in on shares at an all-time trading high.

Netflix has been hit with a class action suit by a group of shareholders that allege the company gave false statements about the business, as part of alleged efforts to artificially raise the company's share price.

Reuters reports the suit, filed in California, claims that the home streaming made misleading comments about the state of contracts it had made with television and film studios, and withheld other information that may have plunged the share price company further.

It also claims that Netflix's senior management sold over 380,000 shares while the company was trading at a high point, paying out over $90 million in cash. The suit also states the executive team held back important data from investors, including contracts that would then have to be renegotiated at an increased rate.

The suit also claims that despite public statements, Netflix executives knew privately that the company would not meet its earnings forecast, giving the executives the opportunity to sell before the share price crashed.

Defendants named include chief executive Reed Hastings, chief financial officer David Wells, and three other senior Netflix executives.

The complaint seeks unspecified damages and legal fees.

Before Netflix announced separate charges for streaming and DVD rentals, along with a 60 percent price increase for some subscriptions, the company was trading at over $290 a share. But after a series of failed attempts to change the business, even by name to the ill-fated and short-lived Qwikster, the company suffered a massive share drop.

Last quarter, Netflix announced that it had lost over 1 million subscribers as it was preparing to launch in the UK and Ireland, as part of a wider European rollout of it service.

Netflix is currently trading at just over $94 a share on Friday at market close.

Netflix did not respond for comment immediately.

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Topics: Legal

About

Zack Whittaker writes for ZDNet, CNET, and CBS News. He is based in New York City.

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