(CN) - Netflix Inc. shareholders filed a class action against the streaming television and movie company over the company allegedly misleading investors about its financial status, resulting in artificially inflated stock prices that eventually plummeted by 73 percent.
     The City of Royal Oak Retirement System alleges the company lied about its business practices and contracts with content providers. The company's stock reached a high or nearly $300 in July 2011, according to complaint, and company insiders dumped more than $90 million worth of shares at inflated prices.
     Netflix, which also operates a DVD-by-mail rental business, suffered big stock hits in late 2011 due to price hikes in subscription plans that resulted in a loss of a million subscribers and a change in billing practices that saw the company charging separately for the two services, upping prices nearly 60 percent.
     The suit alleges that senior management did not reveal the company was bracing for new contract negotiations with streaming content providers they knew would come with significantly higher price tags.
     "On October 24, 2011, Netflix issued its third-quarter 2011 shareholder letter, reporting a net loss of 810,000 U.S. subscribers, translating into a cumulative loss of 5.5 million subscribers," the complaint states, adding that a later filing disclosed that upcoming content costs "skyrocketed" to $3.5 billion "with $2.8 billion due within three years."
     The companyt also allegedly failed to disclose that short-term contracts with content providers would have to be negotiated at higher prices, demands by content providers for higher licensing fees, the need for dramatic price increases to maintain profit margins and that Netflix was not on track to achieve the earnings forecast made by the company for 2011.
     The class is represented by Shawn A. Williams of Robbins Geller Rudman & Dowd in San Francisco and Darren J. Robbins and David C. Walton in San Diego, and Michael J. Vanoverbeke and Thomas C. Michaud of Vanoverbeke Michaud & Timmony in Detroit.