Netflix Facing Class Action Lawsuit Over Tanked Stock

I am sure that there were some people out there who thought things couldn’t get worse for the embattled movie rental company, but worse they got. Netflix’s investors have filed a class action lawsuit against the company for concealing information about the possibility the stock could tank and trends within the company pointing to a lower stock price.

To put their claim in perspective. The day Netflix announced it was splitting the company into two different entities, one for streaming content one for DVD rentals, the stock opened at $291.27 per share. This is the date the class action is claiming that the company concealed its data until October 25, 2011 when the stock closed at $77.37 per share. The stock currently hovers around $100 per share.

The lawsuit is filed against the company and three of its officers, CEO Reed Hastings, Chief Content Officer Ted Sarandos, and Chief Marketing Officer Leslie Kilgore.

The lawsuit alleges,

“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.”

This is the first time that anyone publicly has brought up CEO Reed Hastings’ selling of the company stock during this time. His stock used to have a value of $1.5 million dollars but used to hold the value of $3 million dollars. His salary is only $500,000 per year.

Do you think the investors have the right to sue Netflix?