Initially filed by the Robbins Geller Rudman & Dowd law firm on behalf of investors at the City of Royal Oak Retirement System in Michigan, Netflix is now dealing with a class-action suit alleging that company officials “issued materially false and misleading statements regarding business practices and its contracts with content providers.” Defendants specifically identified within the lawsuit include CEO Reed Hastings, chief content officer Ted Sarandos, chief product officer Neil Hunt, finance director David Wells and marketing director Leslie Kilgore. The lawsuit also contends that “company insiders” quietly sold approximately 400,000 shares of Netflix stock for just over $90 million when the stock was nearing $300 a share during mid-July. Specifically, Reed Hastings sold 190,000 shares to collect approximately $43 million.
The lawsuit claims that Netflix knew that content agreements, such as the Starz agreement, were going to expired if they were not renegotiated, but failed to notify investors of this fact. The lawsuit also claims that Netflix management did not notify investors prior to the announcement of spitting up streaming and the DVD rental service or the price hike that came along with that new business plan. While these series of decisions sent the stock below $100 per share, Netflix lost approximately 800,000 subscribers during the third quarter.
It’s possible that the attorneys representing the people affected by Netflix’s falling stock price will attempt to make a case that Netflix management purposefully made a series of poor business decisions to drive the price of the stock down, specifically to repurchase the stock once it fell considerably. However, the lawsuit doesn’t identify the specific reasons behind the sale of the company stock, nor does it mention if the stock sale was a pre-scheduled event. The lawsuit also doesn’t state how much of the company stock that the five members of upper management still have on hand. This particular law firm handling the case specializes in corporate class actions and has won previous monetary verdicts from AT&T and Enron.