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"A group of investors has filed a class-auction lawsuit against Netflix and several of its executives, alleging that the film and TV subscription service purposely misled the plaintiffs about its earnings prospects ahead before the company's stock took a deep dive in the second half of 2011.\nThe lawsuit was filed in the U.S. District Court of Northern California by the City of Royal Oak Retirement System on behalf of all those who purchased stock between Dec. 20, 2010 and Oct. 24, 2011. In addition to Netflix, Chairman and CEO Reed Hastings, CMO David Wells, Chief Content Officer Ted Sarandos, Chief Product Officer Neil Hunt and CMO Leslie Kilgore were named in the complaint.\nThe plaintiff claims that Netflix issued \"materially false and misleading statements regarding the company's business practices and its contracts with content providers\" and \"concealed negative trends in Netflix's business.\" Those actions caused the stock to trade at \"artificially inflated prices,\" reaching a high of $291.27 per share on July 12, 2011. During that period, Netflix executives sold 338,661 shares of Netflix stock for proceeds of $90.2 million.\nSpecifically, investors believe the company failed to inform them about the increasing cost of short-term contracts with content providers and how \u2014 coupled with a decline of subscribers after Netflix increased the price of its staple subscription plan by 60% \u2014 that would hurt margins. They contend Netflix long knew that it was not on track to achieve its 2011 earnings forecast, but withheld that information from investors.\nThe complaint highlights a number of statements the company made on investors calls, to the media and at conferences over the class period.\nSpeaking off the record, a securities specialist not involved in the case said that the plaintiffs would face an \"uphill battle\" trying to prove that Netflix intentionally misled investors on its 2011 guidance. \"Another issue is damage,\" the source pointed out. \"How would a judge define them? Typically one's stock being 'overvalued' does not create a cause of action, the logic being that even if the stock was overvalued with respect to fundamentals, it was nevertheless trading at that price so the investor could have sold at the right time and reaped the benefit.\"\n\"All in all the claim looks pretty weak, there are a lot of elements to a 10b-5 claim and each one is going to be a challenge for plaintiffs here,\" the source added.\nAnother source suggested the complaint \"might be enough to survive summary judgment,\" meaning that the lawsuit could become a financial burden that Netflix would opt to settle.\nA Netflix spokesperson said the company \"does not comment on legal matters.\"\n\n\nChronicling Netflix's Collapse\n\n\n\n\n\n\n\n1. Netflix Stock Hits All-Time High\n\n\nJuly 13, 2011\nNetflix stock more than doubled over the previous year, then increased by 15% in May to reach its last all-time high in July of $300.\n\n\n\n\n\n\n\n\n\n\n\n2.. Netflix Price Hike Takes Effect Today\n\n\nSept. 1, 2011\nNetflix cancelled its $9.99 combined streaming and DVD plan and separated the services into two separate $7.99 plans.\nPhoto courtesy of Flickr, matthew393\n\n\n\n\n\n\n\n\n\n\n\n3. Netflix Has Lost Half Its Value in Two Months\n\n\nSept. 19, 2011\nThe stock dropped 50% from its July 13 all-time high.\nNetflix Price Stock Chart by YCharts\n\n\n\n\n\n\n\n\n\n\n\n4. Netflix Apologizes to Customers &amp; Rebrands Its DVD Service\n\n\nSept. 19, 2011\nNetflix CEO Reed Hastings introduced Qwikster, the company that would take over its DVD service.\n\n\n\n\n\n\n\n\n\n\n\n5. Netflix Abandons Qwikster DVD Plan\n\n\nOct. 10, 2011\nRecognizing that Qwikster would end up \"making things more difficult\" for its customers, Reed Hasting announced that Netflix will forego DVD rebranding.\n\n\n\n\n\n\n\n\n\n\n\n6. Netflix Loses 800,000 Customers in Quarter\n\n\nOct. 24, 2011\nBy Monday Oct. 24, over 805,000 Netflix customers had cancelled their subscriptions due to the company price hike.\nImage courtesy of Flickr, Ross Catrow\n\n\n\n\n\n\n\n\n\n\n\n7. Netflix Stock Plummets 27% Following Earnings Report\n\n\nOct. 24, 2011\nDown to $85 share price from $300 this summer, Netflix's stock fell 27% following the announcement that it had lost 800,000 customers.\nNetflix Stock Chart by YCharts\n\n\n\n\n\n\n\n\n\n\n\n8. Netflix Stock Falls 37% as Subscribers Depart\n\n\nOct. 25, 2011\nBy premarket trading Tuesday morning, Netflix stock had fallen another 10% since the evening before.\n\n\n\n\n\n\n\n\n\nImage courtesy of Flickr, Ross Catrow"^^<http://www.w3.org/2001/XMLSchema#string>
<http://mashable.com/2012/01/17/netflix-investor-lawsuit/>