Shareholders often sue companies when their stock plummets — so it isn’t surprising to see one against Netflix: It lost 67% of its value since mid-July when it hiked its price by 60% for customers who want to stream videos and rent DVDs. Still, it’ll be interesting to see how the U.S. District Court in northern California deals with the tough charges made in the case filed on Friday by the City of Royal Oak Retirement System. The plaintiffs want a jury to consider whether Netflix execs “concealed negative trends” for the business, causing the stock to hit an unrealistic $300 a share — and giving insiders the unfair opportunity to collect $90.2M by selling 388,661 shares. The suit alleges that through mid-2011 CEO Reed Hastings and other company officials made over-optimistic forecasts about Netflix’s financial performance and scoffed at critics who questioned the company’s ability to pay for slew of programming commitments it was making for its video streaming service. The defendants “recognized that Netflix’s pricing would have to dramatically increase to maintain profit margins given the streaming content costs they knew the Company would soon be incurring,” the suit says. That meant “Netflix was not on track to achieve the earnings forecasts made by and for the Company for 2011.” The plaintiffs — represented by Darren Robbins of Robbins Geller Rudman & Dowd — want the court to grant them class action status, enabling them to represent any shareholder who shares their beef with Netflix. They didn’t specify how much they’re seeking in damages. Netflix says that it doesn’t comment on legal matters. Wall Street seemed to take the news in stride; Netflix shares are up less than 1% before the end of the trading day.
Suit Alleges Netflix Execs Cashed In While Misleading Investors About Company Woes
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