Netflix Sued Over Fears of Insider Sales Before Stock Crashed

A Netflix Inc. investor filed suit in Delaware, citing concerns that company leaders sold or donated hundreds of millions worth of its shares on suspicious terms before public revelations that subscribers are leaving its streaming service caused the Silicon Valley giant to lose two-thirds of its market value.

The lawsuit seeks to probe claims that two top executives sold shares worth $53 million before the bad news broke, while CEO Reed Hastings gave away $398 million in stock—possibly to his own family trust— when its artificially inflated value likely translated into an unjustified tax windfall.

Because the trades and gifts were made while the disappointing subscriber figures were still under wraps, there’s “a credible basis to infer that wrongdoing may have occurred” and to “investigate whether there was insider trading,” the 13-page suit says.

The complaint in Delaware’s Chancery Court seeks documents under a state law giving corporate shareholders broad inspection rights if they credibly suspect legal violations. Records cases often reflect an attempt to drum up fiduciary breach claims against a company’s board, management, or owners.

Netflix didn’t immediately respond to a request for comment Monday.

According to the complaint, the sales and gifts came shortly before Netflix shares tumbled from above $600 in December to below $200 in April, based on consecutive quarters that showed first slowing growth and then the company’s first loss of subscribers in more than a decade.

The suit was filed June 3.

Cause of Action: Section 220 of the Delaware General Corporation Law.

Relief: Disclosure of relevant company records; costs and fees.

Attorneys: The plaintiff is represented by Ashby & Geddes PA and Levi & Korsinsky LLP.

The case is Williams v. Netflix Inc., Del. Ch., No. 2022-0482, complaint filed 6/3/22.