In re Netflix, Inc. Securities Litigation
Status: Ongoing Case
Labaton Sucharow is the Court-appointed lead counsel for the Court-appointed lead plaintiffs, Arkansas Teacher Retirement System and State-Boston Retirement System, in In re Netflix, Inc. Securities Litigation, No. 3:12-cv-225-SC (N.D. Cal.), a securities fraud class action alleging that Netflix, Inc. (“Netflix” or “the Company”) and certain of its officers engaged in a scheme to deceive the investing public about the true value of Netflix stock.
On June 26, 2012, lead plaintiffs filed a Consolidated Class Action Complaint (the “Consolidated Complaint”) alleging securities fraud against Netflix, Reed Hastings (CEO), David Wells (current CFO) and Barry McCarthy (former CFO) (collectively, “defendants”). In this action, lead plaintiffs represent a proposed class consisting of all persons and entities who purchased or acquired the common stock of Netflix during the period between October 20, 2010 and October 24, 2011, inclusive (the “class period”), and who were damaged thereby, pursuing remedies under the Securities Exchange Act of 1934. Lead plaintiffs allege that the defendants violated the securities laws by making false and misleading statements and omissions concerning the growth and profitability of its streaming segment business. In reality, the streaming segment that had purportedly become the Company’s “core strategy,” was, in fact, significantly less profitable than its fading DVD-by-mail segment. Defendants concealed this fact, in part, by improperly aggregating the reported financial data for Netflix’s streaming and DVD-by-mail segments—including its costs and revenue—in direct violation of SEC disclosure rules and U.S. Generally Accepted Accounting Principles (“GAAP”). In addition, defendants also concealed information required under Regulation S-K regarding known trends and uncertainties.
Investors learned the truth about the disparate profitability between Netflix’s streaming and DVD-by-mail segments between September 1, 2011 and October 25, 2012. In response to these admissions, Netflix’s stock price plummeted from $233.27 per share on September 1, 2011 to $77.37 per share on October 25, 2011, representing an aggregate decline of almost 67%. Notably, prior to the revelation of the truth and eventual price drop, Netflix’s CEO, current CFO, and former CFO, sold over $85 million during the class period for their personal profit.
Lead plaintiffs filed the Consolidated Complaint on June 26, 2012.On February 13, 2013, the Court entered an Order granting defendants’ motion to dismiss without prejudice.The Amended Complaint is due on March 15, 2013.