Netflix Hit With Class Action By Investors Over 2011 Stock Nosedive

Add this to the growing list of Netflix's woes: It's getting sued.

As it struggles with a weakened stock and battered public perception, Netflix now finds itself the subject of a class-action lawsuit in California. A group of investors filed the suit in U.S. District Court "against Netflix and certain of its officers and/or directors", contending that "company insiders" at Netflix were "conceal[ing] negative trends" that preceded the stock's ultimate plummeting and selling NFLX stock while the stock was at that "artificially inflated" peak.

For background, on July 12, the day Netflix announced that it would split its DVD and streaming services, Netflix stock closed at a price of 291.27; on October 25, 2011, the final day of the class action lawsuit, the stock closed at 77.37. On Tuesday, Netflix was trading around the 97.00 mark.

Among the defendants named in the lawsuit are embattled Netflix CEO Reed Hastings; Chief Content Officer Ted Sarandos; and Chief Marketing Officer Leslie Kilgore. A summary of the accusation, from the lawsuit:

During the Class Period, defendants issued materially false and misleading statements regarding the Company's business practices and its contracts with content providers. Specifically, defendants concealed negative trends in Netflix's business. As a result of defendants' false statements, Netflix's stock traded at artificially inflated prices during the Class Period, reaching a high of almost $300 per share on July 13, 2011. While Netflix stock was inflated (partially by Netflix buying back its own stock), Comapny insiders were selling 388,661 shares of their own Netflix stock for proceeds of $90.2 million.

Though Netflix has long been getting pilloried in the court of public opinion, with Internet commenters and message board denizens blasting the company for what they perceive as corporate greed, this is the first official legal thrust at the popular streaming-and-DVD service as a result of its sudden stock price drop. It had also been publicly noted that CEO Hastings was selling lots of his company's stock, with many questioning why, though this lawsuit also marks the first legal criticism of his selling.

Hastings, for one, is taking a huge pay cut for 2012, with his stock options down to $1.5 million from $3 million. His base salary of $500,000 per year remains the same.

A spokesperson Netflix declined to comment.

Earlier on HuffPost:

Check out the slideshow (below) to view the worst tech flops of 2011.

Comments

[Joseph Santoli]

10:27 AM on 03/03/2012

For shareholder claims and latest info view www.netflixclassaction.com

[mrgwashere]

11:33 AM on 01/19/2012

It's not just Netflix. It's also:
Any cable companies' On Demand viewing
Amazon and
Amazon Prime
Hulu Plus
MLB TV
Pandora
Crackle
Epix
News Caster
Disney
YouTube
and many others...
And how 'bout all those data-using IPhones out there? That's not bandwidth?

None of these providers stream for free; they can't. If they are not a cable provider, you can betcher a$$ they are paying somebody for that bandwidth. Nobody rides for free. Not us and not them. Google "Peering and Transit Agreements".

So while greed might be a part, the reality is that these providers pay much to acquire content then pay to stream that content. As their customer base grows and with it the number of streaming hours, 3rd party delivery networks increase the fees.

It isn't merely the content providers that are driving up your prices... it's the ISP's. They pass on the cost to you in your cable bill and/or your phone's data usage charges and they also collect from the providers. They get theirs from 2 sources.

While we sit on sites like these and point accusing fingers at Netflix and their ilk... the ISP's are laughing all the way to the bank... and at our expense.

[gtg007w]

11:25 AM on 01/18/2012

I got a mail about a class action suit against Netflix and Walmart for colluding to postpone release of certain movies on Netflix or something so that Walmart can get the sales first or something along those lines. Never been involved with a class action and wasn't sure if I should have signed up to be part of it. I've been Netflix user since 2005 and though I'm streaming only subscriber now, you really can't beat all the content for $8 a month. It's come a long long way since it first allowed streaming where the contents were utter crap.

[bestmugshots]

10:29 AM on 01/18/2012

Ummmm, where else can you get unlimited streaming video content without commercials for $8 a month? Stop whining.

[kwhitney333]

10:06 AM on 01/18/2012

I am one of the many that discontinued the DVD portion of Netflix. I kept the streaming but am still waiting for them to increase selection which was promised and have yet to see...I will keep it for now but if they do not increase the selection will look at other options...however if they increase their prices again for any greedy reason I will cancel...

[pennylynn44]

09:01 AM on 01/18/2012

~~Corporate greed...seems to be what America has turned into. Let's take something that was making money and was a great service for people. Double the price, break it up and make it harder to use....oh btw...the CEO completely messes up, doesn't get fired, his stock options cut in half and GETS TO KEEP his original salary. If this had been a normal American worker, he/she would have been canned the first day! Even if they restored their service and price to what it was before, I would never return. Crash to the ground Hastings....you should be proud! You did this! Dumb jerk!!~~

[joecjr]

08:01 AM on 01/18/2012

They are also in a law suit for being such a bandwidth hog over the internet, most ISP's are putting caps on because of the continued use for these type services, people are expecting a system that wasn't designed or have the infrastructure to support such huge bandwidth demands that companies like this are demanding on their networks. People are expecting to turn off their cable or satellite providers to save money and just use the internet for everything, sorry folks that's not going to work until there's a lot more bandwidth available to use which requires large investments in infrastructure and a lot of time to do.

[unlikelyconservative]

12:13 PM on 01/18/2012

Hello Google Fiber.

[Arashi]

07:48 AM on 01/18/2012

Yesterday, some poor schmuck got fired from McD's because he gave out three packets of ketchup, and his boss was in a mood.
Hastings nearly destroyed a company in a matter of months and is ony going to get 1.5 million in stock options (on top of a half million dollar salary).

Welcome to America. Move along, now. Nothing to see here, folks.

[johnhen56]

02:07 PM on 01/18/2012

its his company he cant be fired Next people will be saying that Warren Buffet should be fired whenever he makes a investing mistake (not that he does) when the CEO is also the founder then "investors" are investing in him/her stock is up stock is down profit is up profit is down.

[Timothy Ven]

11:02 AM on 02/12/2012

Actually, he can be fired as CEO. He just can't be fired as owner. Boards have often replaced CEO Owners for missteps such as this

[waldopepper]

02:03 AM on 01/18/2012

I signed up with Netflix the other day. I cannot believe how incredibly meager the selection is. What they do have is made up of older titles and of the newer titles that I may have been interested in, I have seen all that I am interested in already.

It is a good thing the first month is a freebie, cause only a few days in I have already exhausted what Netflix has to offer and know that I shall not be extending my membership beyond the first free month. I am honestly disappointed.

[Monster Mash]

01:29 PM on 01/18/2012

You're probably from Canada, eh? Netflix is absolutely horrible here. Even though there are some good titles, we hardly get anything new and we've incredibly limited to what the States get.

[waldopepper]

05:04 PM on 01/18/2012

Right eh. It's enough to make me want to bash someone with my hockey stick.

[clevegallat]

12:40 AM on 01/18/2012

I like Netflix. What's the problem again?

[dthorn2984]

12:38 AM on 01/18/2012

When looking at netflix, I could never personaly bring myself to get in it.. seemed to inflated for what it is..just like a few others with high price tags and zero dividens to me no value but maybe a fast trade.. So if you were buying to hold...?? good luck

[LaLaLand1972]

12:07 AM on 01/18/2012

This man made a bad decision....why not just UNDO it???? or is that too simple ;) or could it be that their greed has blinded them to such a degree that they believe that 800,000 will magically change their minds and pay them double?

[ILoveGreatDanes]

05:32 AM on 01/18/2012

Exactly. The main problem, the thing that made people so angry, was raising the prices by 60% on the plan most customers had. Yet Reed Hastings made pseudo apologetic videos, announced bits of content he's going to add in 2013, send mass emails telling people to come back, and not done the one thing that customers want: reduce the price back to what it was, or at least offer a bundle discount.

[HunterHikes]

11:08 PM on 01/17/2012

It's about time!

If these stockholders were smart, they'd settle out of court for this stipulation: Reed Hastings must be fired and never EVER be allowed to work for Netflix again in any capacity.

He turned a company that had one of the highest positive name brands to one of the most hated in under four months. That's a guy who should not still have that job. If he worked for any other company where stock plummeted that low so fast, he'd have been out on his rump.

"Here's your golden parachute, Reed. Don't come back!"

[f1nesse101]

10:21 PM on 01/17/2012

MOre crooks to add to the growing list of corporate executives who have pillaged the company. Where is the 90 million dollors of stock options that were cashed in before the stock price lost 60% of its estimated value? How can the SEC and the Department of Justice injustly continue to let these perps walk the streets. There should be very little confidence when buying on Wall Street but it seems some people go right on buying into deceit and failure.

[LARRY LOU CHRISTIAN]

01:44 AM on 01/18/2012

Dear f1nesse101,

SPOT ON !! Netflix is a good service; it’s the company’s corporate bandits who are killing the golden goose. Their Machiavellian minds are only exceeded by their greed.

Corporations and banks, with the government as their catalyst, are the culprits that have decimated our economy - not labor unions, as they would have you believe.

The dilemma in a nutshell: "......between 1982 and 2005, personal income only grew about 10 percent and company earnings about 300 percent"

"America's top bosses enjoyed pay hikes of between 27% and 40% last year, according to the largest survey of US CEO pay. The dramatic bounce-back comes as the latest government figures show wages for the majority of Americans are failing to keep up with inflation." ~ The Guardian, 12-14-2011

Many do not understand that about 70 percent of the U.S. economy is built on consumer spending. As long as greedy corporations and banks keep their feet on the necks of the working class, our economy will never recover.

[Ukie3]

10:24 PM on 01/18/2012

I couldn't agree with you more.

[writeon1]

10:08 PM on 01/17/2012

So often greed and not thinking of your customers first doesn't lead to any repercussions for a corporation. This time one of the mighty 99% might just get a taste of what us 1% feel like all the time, as their stock plunges lower and lower. They're toast. As far as their stock holders go, if stock were a sure thing we wouldn't be in the economic mess we're in now.