Netflix misled investors about declining subscriber growth over the course of six months — leading to a massive drop in its stock price, according to a shareholder lawsuit.
The lawsuit, filed Tuesday in federal district court in San Francisco, alleges Netflix violated U.S. securities laws by making “materially false and/or misleading statements” and also because it “failed to disclose material adverse facts about the company’s business, operations, and prospects.”
Last month, Netflix reported a net loss of 200,000 subscribers in the first three months of 2022 and forecast a decline of another 2 million in Q2, citing various challenges including password-sharing behavior among some 100 million households that do not pay for the service.
Netflix did not immediately respond to a request for comment.
The lawsuit, which seeks class-action status, seeks unspecified monetary damages on behalf of investors who owned Netflix shares between Oct. 19, 2021, and April 19, 2022. Those include “compensatory damages in favor of Plaintiff and the other Class members against all defendants, jointly and severally, for all damages sustained as a result of Defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon.”
Netflix and its top execs “employed devices, schemes and artifices to defraud, while in possession of material adverse non-public information” the lawsuit reads. They also made “untrue statements of material facts and/or omitting to state material facts necessary in order to make the statements made about Netflix and its business operations and future prospects in light of the circumstances under which they were made, not misleading.”
The lead plaintiff in the lawsuit is Fiyyaz Pirani, a trustee of Imperium Irrevocable Trust, which is a Netflix shareholder. The lawsuit names Netflix, co-CEOs Reed Hastings and Ted Sarandos, and CFO Spencer Neumann as defendants. It seeks damages for investors who traded Netflix shares between Oct. 19, 2021 and April 19, 2022.
The case is Pirani v. Netflix Inc et al., with docket number 22-CV-02672, filed in the U.S. District Court for the Northern District of California. The firm representing plaintiffs is Glancy Prongay & Murray, which specializes in class-action lawsuits involving securities fraud claims.
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