Netflix is facing a class action lawsuit from investors who claim management misled shareholders over the deteriorating state of the streaming business – while cashing in $90m in stock while the share price was at an all-time high.
Online streaming service Netflix, which is keen not to be distracted from its costly launch into the UK & Ireland, is facing the lawsuit filed in California accusing senior executives of issuing "materially false and misleading statements regarding the company's business practices and its contracts with content providers".
The defendants named in the action are chief executive Reed Hastings, finance director David Wells, chief content officer Ted Sarandos, chief product officer Neil Hunt and marketing director Leslie Kilgore.
"Defendants' statements about Netflix's ability to secure content and maintain profit margins were crucial to investors' evaluation of Netflix," the lawsuit contends. "Rather than fully disclose the devastating cost increases which were then threatening Netflix's entire business, defendants talked about its ability to grow. Specifically, defendants concealed negative trends in Netflix's business."
The lawsuit claims that as a result Netflix's share price – which hit almost $300 last summer before slumping to less than $90 – traded at "artificially inflated prices".
The legal action, filed by law firm Robbins Geller Rudman & Dowd on behalf of institutional investors at the City of Royal Oak Retirement System, also claims "company insiders" took the opportunity to sell 388,661 shares for $90.2m (£58.73m) while the stock price was riding high.
The action has been filed on behalf of "all plaintiffs similarly situated" with a grievance about the statements and business practices of Netflix between 20 December 2010 and 24 October 2011.
The complaint seeks unspecified damages and legal fees.
Netflix confirmed it does not comment on pending litigation.
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