Shareholders launch Netflix suit over shares dive

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By John Glenday, Reporter

January 17, 2012 | 2 min read

A group of shareholders have launched a lawsuit against entertainment subscription service Netflix accusing the company of misrepresenting the health of the business to inflate its share price.

Fueling anger have been reports that Netflix executives sold 388,661 shares before the stock price collapsed, netting themselves over $90m in the process.

In their suit the shareholders note that the Netflix share price subsequently fell: “Later, when the defendants’ prior misrepresentations and fraudulent conduct became apparent to the market, the price of Netflix common stock fell precipitously, as the prior artificial inflation came out of the price over time.”

A disastrous run of form at Netflix saw the firm introduce a 60% increase to the subscription rate of its most popular service and an abortive attempt to spin off its mail DVD business into a separate company called Qwikster.

Despite a subsequent apology and U-turn Netflix’s share price subsequently nosedived from $300 to around $94 today.

It is claimed that executives had prior knowledge of a number of short term contracts held with studios which would need to be renewed at much higher cost, forcing the firm to raise its prices.

The plaintiffs are seeking unspecified damages and attorney’s fees.

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