Pirani v. Netflix Inc., docket number 22-CV-02672, was filed in the U.S. District Court, Northern District of California on May 3, 2022. The lawsuit concerns a class action for individuals who purchased or acquired Netflix common stock or call options, or sold put options, between October 19, 2021 and April 19, 2022. The claims against Netflix include violations of the Securities Exchange Act of 1934.
The Alleged Omission and Misrepresentation
The claims against Netflix concern alleged failures to disclose significant loss in subscribers during the first Quarter of 2022. First, the claimants allege that Netflix slightly “over-forecasted” the number of subscribers by about 200,000. However, to curb this disappointing news, claimants allege Netflix continued assuring investors that Netflix has a “healthy” retention and engagement. On this news alone, Netflix’s stock price fell 21.7%, to close at $397.50 per share on January 21, 2022.
Worse, claimants allege that on April 19, 2022, after the market closed, Netflix reported a loss of 200,000 subscribers during the 1Q. However, allegedly Netflix previously forecasted an expectation to acquire 2.5 million new subscribers. Upon this news, Netflix’s share price fell over 35% to close at $226.19 per share. Claimants allege Netflix failed to inform investors it was exhibiting slower growth, difficulty retaining customers, subscriber loss and financial difficulties. Claimants allege that Netflix’s positive statements about the company’s business operations were materially false or misleading due to these omissions.
Securities Fraud
Section 10b-5 makes it unlawful for any person to directly or indirectly employ any device, scheme or artifice to defraud. It also prohibits making any untrue statement of material fact or omitting material information. The Securities Exchange Act prohibits any act which operates as a fraud or deceit on any person, particularly securities investors. The anti-fraud provisions of the Securities Exchange Act enacted specifically broad language to capture any type of fraudulent scheme. Securities fraud occurs in so many different ways and has many forms. It commonly occurs through a failure to disclose important or “material” information to investors prior to purchasing a security. This is what the claimants who purchased Netflix securities towards the end of 2021 and early 2022 allege.
They allege Netflix purposefully mislead or failed to disclose important information that would have affected their decision to invest. Whether information is material, is a fact question to be determined by a judge or jury. If you were deciding to invest in a company, would you want to know all of the business operations – for Netflix, the status of its subscriber retention and acquisition?
Investors generally want to know the good, bad and the risks of a company. Here, it is alleged that Netflix forecasted continued growth based on a strong business foundation. However, claimants allege Netflix failed to disclose the negative aspects of the business. They claim Netflix failed to disclose increased competition, sharing accounts, declining subscribers and other information that would negatively affect the stock market value. In essence, the downplay of the negative aspects of Netflix made the positive forecasts misleading or false. Thus, allegedly, Netflix overinflated the stock market value by hiding important information.
If you have been misled prior to an investment, give us a call. The Spencer Law Firm often assists those who have been defrauded and we may be able to help you. Please contact us by email or by calling (713) 961-7770 for a free consultation to discuss your case.