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Officers and members of the board of directors at Netflix are currently under investigation by former United States Securities and Exchange Commission attorney Willie Briscoe for claims of securities violations.
The class action complaint charges some top executives at Netflix with violating provisions of the Securities Exchange Act of 1934. The directors face allegations that they withheld certain key information from investors, such as that the company's content providers were asking for higher licensing fees, and that short-term contracts with some content providers were likely to lapse or be renegotiated at less favorable terms to Netflix.
"Because of the severity of the accusations lodged against certain of Netflix's officers and directors, we are concerned about the possible damage to the company and its shareholders, and the firms have commenced an investigation to uncover possible breaches of fiduciary duties and other violations of state law by the officers and directors," said Briscoe.
The legal action against Netflix highlights how important officers and directors insurance can be for tech companies. Given the complex relationships companies like Netflix often have with content providers, and given the shifting landscape of internet law, tech companies would be well-advised to seek out excellent professional liability insurance and other coverages.
Netflix was involved in another class action lawsuit at the end of 2011.
That lawsuit alleged that Netflix and Wal-Mart made an unlawful deal, which gave Netflix too much control over the DVD market by having Wal-Mart suspend its DVD sales and encourage customers to start a subscription with Netflix.