Investor Eugene Rausch has filed a federal class action against Internet DVD rental firm Netflix Inc. and its top executives, claiming the company pumped up its stock price by hiding from shareholders
LOS ANGELES -- Investor Eugene Rausch has filed a federal class action against Internet DVD rental firm Netflix Inc. and its top executives, claiming the company pumped up its stock price by hiding from shareholders the fact that its subscriber base was shrinking.
Rausch's suit was filed July 27 in U.S. District Court for the Northern District of California, on behalf of all those who purchased Netflix securities between Oct. 1, 2003, and July 15, 2004. Netflix is publicly traded on the NASDAQ exchange.
Netflix chairman/president/CEO Reed Hastings and CFO/secretary W. Barry McCarthy Jr. are named as defendants.
The action claims that while Los Gatos, Calif.-based Netflix claimed robust growth and subscriber figures in quarterly shareholder reports from October 2003 to April 2004, Hastings and McCarthy "knew or recklessly disregarded the fact that adverse facts ... had not been disclosed to, and were being concealed from, the investing public."
The suit notes that after a substantial decline in subscriptions and an anticipated increase in subscription rates were revealed in a second-quarter report released July 15, Netflix shares plunged $8.98, or 28%.
The action claims that previous quarterly reports contained "false and misleading statements," which led to Netflix's stock "(trading) at artificially inflated prices."
A Netflix spokesperson says the company does not comment on pending litigation.