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TheStreet Open House

Angry Netflix Investors Fight Back

NEW YORK ( TheStreet) -- Netflix (NFLX - Get Report) is being hit with a class-action suit by investors who claim the company withheld information prior to its infamous stock plunge late last year.

The suit, filed in U.S. District Court in Northern California, alleged that Netflix senior management -- including CEO Reed Hastings, Chief Content Officer Ted Sarandos, Chief Product Officer Neil Hunt and Chief Marketing Officer Kilgore - "issued materially false and misleading statements" regarding its ability to grow and minimized licensing fees.

The suit also noted\s that Netflix's senior managers sold off many of their shares when the stock was near its high of almost $300, which resulted in proceeds of $90.2 million among them.

Netflix's stock took a major hit in September following an announcement that the company lost more subscribers than expected following its price hike. This came around the same time Netflix said that discussions with Liberty Starz fell through to renew its streaming contract.

The stock fell further when the company announced the split of its streaming service and DVD business into two separate companies. Management later dropped plans for the division of the two services.

In October, Netflix announced it lost more around 800,000 subscribers in its third quarter, much more than anticipated. Shortly after, management warned the company would report a loss in several quarters of 2012 and later revised the outlook saying it will lose money for all of the year.

"At the beginning of the class period, Netflix was facing increasing competition for streaming business and content providers were exploring new ways to distribute their content and/or maximize their licensing fees, ... Rather than fully disclose the devastating cost increases which were then threatening Netflix's entire business, the defendants talked about their ability to grow," according to the suit, which was posted by Robbins, Geller, Rudman & Dowd LLP, the law firm handling the claims.

Shares of Netflix ended 2011 down more than 60% and 73% off their July high. But the stock has rebounded 30.6% in 2012, making it one of the best performing stocks on the S&P 500 so far this year.

Netflix declined request to comment on the case.

-Reported by Jeanine Poggi in New York.

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