Netflix, Inc. (NFLX) Sued For Misrepresenting Subscriber Growth

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Netflix, Inc. (NASDAQ:NFLX), the film-streaming service, was sued by a shareholder under the allegation that the company misrepresented its subscriber’s growth.

Netflix, Inc. (NFLX) Sued For Misrepresenting Subscriber Growth

Bloomberg reported that Netflix’s Facebook page highlighted a  “monthly viewing exceeded 1 billion hours for the first time ever in June,” on June 3rd last year. This caused the stock price of the company to rise from $72.04 to close at $81.72 a share, two days after the company’s post on its Facebook page.

According to the complainant’s filing, Netflix, Inc. (NASDAQ:NFLX) Chief Executive Officer Reed Hastings’ post on the ompany’s Facebook page showed that “Netflix was on target to achieve the 7 million net additions in domestic subscribers”. The complaint said Hastings had predicted similar growth earlier in 2012.

The film streaming company, according to the complaint filed by the shareholder,  “intentionally misrepresented the impact of the 1 billion hours of viewing on subscriber growth,”

Bloomberg reports that Netflix, Inc. (NASDAQ:NFLX) spokesman couldn’t be reached for his comment on the matter.

Hastings said in December that the posting to his Facebook contingent of 200,000 followers “is very public.”

The CEO and the company received a Wells Notice in December, which showed an indiciation by SEC staff that a sufficient illegality had occurred to warrant a civil claim against Hastings and his Los Gatos, a California-based company, for allegedly violating selective disclosure rules.

In the light of this incident, the SEC is yet to broaden its spectrum about allowing professional communication to investors on social networks like Facebook Inc (NASDAQ:FB), Twitter or Linkedin Corporation (NYSE:LNKD).

In his defence, Hastings argued that the information posted on the company’s Facebook page was not material as he has already predicted a usage of 1 billion hours a month on the company’s blog.

The case is Schulthes v. Netflix Inc., 13-00712, U.S. District Court, Northern District of California (San Jose)

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