Netflix’s shareholders are suing the company over subscriber losses.
According to Variety, the online streaming giant has been hit with a lawsuit by its shareholders who claim that Netflix misled them about the extent of its recent subscriber losses.
The lawsuit, filed on Tuesday, May 3, 2022, in a federal district court in San Francisco, alleges that Netflix violated U.S. security laws by making “materially false and/or misleading statements” to its shareholders. It’s also claimed that Netflix “failed to disclose material adverse facts about the company’s business, operations and prospects.”
Netflix lost a staggering 200,000 subscribers in the first three months of 2020 and according to reports, it has since responded to these massive drops with targeted cuts to its animation department as well as canning its TUDUM media outlet – an online editorial website that only operated for several months.
It also began to crack down on password sharing, hoping to increase the number of subscribers by limiting the ability to share Netflix accounts.
The lawsuit, which seeks class-action status, seeks unspecified monetary damages on behalf of investors who owned Netflix shares between October 19, 2021, and April 19, 2022.
Damages claimed 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 shares plummeted 35.1 percent overnight after reports of subscriber losses, losing $54.3 billion overnight. That’s the single biggest one-day drop in Netflix history.
Meanwhile, the lawsuit alleges that Netflix and its top executives “employed devices, schemes and artifices to defraud [investors], while in possession of material adverse non-public information”.
The lawsuit also claims that Netflix 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.”
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Allegations that Netflix has been covering up its losses go back to the company’s Q3 earnings report in October 2021. Shareholders claim they were not told about Netflix’s declining subscriptions.
“Netflix was exhibiting slower [customer] acquisition growth due to, among other things, account sharing by customers and increased competition from other streaming services,” reads the lawsuit.
They claim to have suffered “significant losses and damages” in the wake of Netflix’s “wrongful acts and omissions, and the precipitous decline in the market value of the Company’s securities.”
Netflix’s stock price dropped a staggering 67% during the period covered in the lawsuit – from $691.69/share on November 17, 2021, to just $226.19/share on April 20, 2022.
The case of Pirani v. Netflix Inc et al. was filed in the U.S. District Court for the Northern District of California. The lead plaintiff in the suit is listed as Fiyyaz Pirani, a trustee of Imperium Irrevocable Trust, which is a Netflix shareholder. The lawsuit names Netflix as well as co-CEOs Reed Hastings and Ted Sarandos and CFO Spencer Neumann as defendants.
Ryan Leston is an entertainment journalist and film critic for IGN. You can follow him on Twitter.