Netflix is being sued by investors who claim the streaming giant misled them about subscriber growth in the six months before it reported a loss of 200,000 subscribers, leading to a plunge in stock price.
The lawsuit, which seeks class action status, was filed in San Francisco federal court on Tuesday and alleges Netflix violated U.S. securities laws by making ‘materially false and/or misleading statements’ and because it ‘failed to disclose material adverse facts about the company’s business, operations and prospects.’
The lead plaintiff ‘Pirani v. Netflix Inc et al’ is Fiyyaz Pirani, a trustee of Imperium Irrevocable Trust, which is a Netflix shareholder, is named in the lawsuit that seeks damages for declines in the company’s share price this year after the company missed its subscriber growth estimates.
Netflix shares dropped 20 percent in January after it disclosed weak subscriber growth and then shares plunged more than 35 percent on April 20 to close at $226.19 after it said it lost 200,000 subscribers in its first quarter.
The lawsuit was filed just days after it was reported by Deadline that Netflix had dropped Meghan Markle’s animated series as part of a wave of cutbacks prompted by the streaming service’s drop in subscribers.
Filed by a Texas-based investment trust, the lawsuit accused Los Gatos, California-based Netflix and its top executives of failing to disclose that its growth was slowing amid increased competition and that it was losing subscribers on a net basis.
The lawsuit seeks damages for investors who traded Netflix shares between October 19, 2021 and April 19, 2022 – which include ‘compensatory damages’ with an ‘amount to be proven at trial.’
Netflix has not responded to request for comment from DailyMail.com.
The lawsuit names defendants as Netflix and co-CEOs Reed Hastings and Ted Sarandos and CFO Spencer Neumann.
According to the lawsuit, Netflix ’employed devices, schemes and artifices to defraud [investors], while in possession of material adverse non-public information.’
Netflix 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 lawsuit alleges.
Because of Netflix’s ‘wrongful acts and omissions, and the precipitous decline in the market value of the Company’s securities, Plaintiff and other Class members have suffered significant losses and damages,’ the complaint states.
Netflix shares dropped 20 percent in January after it disclosed weak subscriber growth.
Netflix shares then plunged more than 35 percent on April 20 to close at $226.19 after it said it lost 200,000 subscribers in its first quarter, falling well short of its forecast of adding 2.5 million subscribers.
Netflix opened at $200.44 on Thursday morning and by midday, shares were trading at $193.80.
The company attributed the quarterly decline to inflation, competition from other streaming services and its suspension of service in Russia following the Russian invasion of Ukraine, which cost Netflix 700,000 members.
On Sunday, Deadline reported that Pearl, which was created by the Duchess of Sussex through Archewell Productions, was officially canceled.
Markle and Prince Harry established Archewell Productions in autumn 2020 in an effort to create scripted series, docuseries, documentaries, features and children’s programming. Pearl was expected to be the first animated series created by the production company.
Despite dropping Pearl, insiders claim Netflix remains optimistic about the Archewell deal and has a number of projects planned, including a documentary series called Heart of Invictus, which follows the recent Invictus Games.
Netflix has made several cuts in recent days, including dropping two other children’s shows and firing staff.
Last week, the streaming service scratched Dino Daycare, which was created by Jeff King, and the South Asian-inspired adventure Boons and Curses. Both shows were already in production.
Sources familiar with the cancellations told Deadline that Netflix had warned producers to take projects still in the development stage elsewhere. It is unclear if they offered Archewell Productions similar advice.
The streaming giant shelled out a $100million in the deal with the Duke and Duchess of Sussex in September 2020.
As of yet, the Duke and Duchess of Sussex are yet to produce any published content for the streaming giant. But the company has pinned hopes that their upcoming series documenting the recent Invictus Games will prove value for the money.
Netflix also began firing staff after missing its subscriber target by 200,000 people and watching the value of its shares tank by 50 percent in a month.
The company made the layoffs at Tudum, a website filled with stories that are meant to market Netflix’s programs, it was revealed on Thursday. At least 10-15 staff tweeted about being fired, although the exact number dismissed remains unclear.
The site, named as an onomatopoeia for the sound you hear when a Netflix show begins, was meant to allow subscribers insider access to the company’s shows.
Netflix refused to tell the Los Angeles Times how many jobs were cut, merely saying ‘our fan website Tudum is an important priority for the company.’
Some of those laid off took to Twitter, saying that the company had only hired them months earlier.