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Former Netflix executive convicted of receiving bribes from contractors

justice.gov

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Re: Former Netflix executive convicted of receiving bribes from contractors

#61

Post by tomp »

tptacek wrote: post #8
earthscienceman wrote: post #3

Earlier quoted context omitted.

Some feedback from an outsider: IMO you do a poor job clearly outlining the transgressions and the legal issues at play. You bounce around phrases like "pay-to-play"but as someone not inside the startup world, I didn't get to the end of your article and understand exactly what he did that was illegal/immoral and the context for how it's harmful to startups. In other words, I know he is accused of doing something wron…

The article describes an absolutely standard kickback scheme. If you're an employee of a company and arrange to take kickbacks from vendors without the approval of your employer, you're defrauding your employer.

But the article doesn't say that he was taking "kickbacks", but that he was hired as a "consultant". Is that illegal?

"We'd like to do business with Netflix, hmmm whom should we hire as a consultant, maybe someone at Netflix, surely knows a lot about the kinds of companies that do business with Netflix."

Edit: I agree it's immoral just like how FDA leaders approving drugs then getting hired by the drug industry is immoral, but IIRC the problem is that that's just circumstantial evidence... it's hard to prove that what they did was illegal.

Re: Former Netflix executive convicted of receiving bribes from contractors

#62

Post by spenczar5 »

tptacek wrote: post #43

The DOJ press release is clearer than this article is: https://www.justice.gov/usao-ndca/pr/former-netflix-executiv... Some fun details: Kail did his criming through a shell LLC he set up called "Unix Mercenary". He took between 10-15% of the total billings for each of the companies he hooked up with this scheme. None of those companies were charged (more's the pity). They got him on mail fraud, wire fraud, honest se…

Thanks, this is indeed a better source.

A lot of people here are saying this is incredibly common which is frankly pretty surprising to me. Does it really happen through shell LLCs?

I am definitely aware of execs prioritizing startups they've invested in, which is... not a great look.

But this seems to be a different thing. Kail wasn't an investor. He explicitly drafted agreements that paid him a fraction of the money flowing from Netflix. This seems almost like embezzlement to me (not a lawyer! just a guy using words he has heard!):

> Two days before Unix Mercenary was registered, Kail signed a Sales Representative Agreement to receive payments from Netenrich, Inc. amounting to 12% of the billings from Netenrich, Inc. to Netflix for its contract providing staffing and IT services to Netflix. Later in 2012, Kail began to receive 15% of all billing payments that VistaraIT, LLC, a wholly owned company of Netenrich, received from Netflix. From 2012 to 2014, Netenrich, Inc. paid Unix Mercenary approximately $269,986, and VistaraIT, LLC paid Unix Mercenary approximately $177,863. The payments stopped in mid-2014, after Kail left Netflix.

Re: Former Netflix executive convicted of receiving bribes from contractors

#63

Post by junon »

whymauri wrote: post #12

>In his own memorandum to the court, requesting that he be sentenced to a year of house arrest, Kail, 49, described himself as a “global power leader, top dev ops influencer and a thought leader.” So very humble of him.

Sounds like Andrew Lee (of Freenode fame).

Re: Former Netflix executive convicted of receiving bribes from contractors

#64

Post by ksdale »

numbsafari wrote: post #44
csmythe15 wrote: post #2

Hey, I'm the author of the article -- just wanted to point out that what made this story interesting to me is the implication that this kind of conduct could be very widespread. Prosecutors definitely hinted at that. If anyone knows of any similar stories, I'd be very interested in hearing them. christie.smythe@businessofbusiness.com

The amount of "I don't get why this is wrong?" going on in this thread would seem to support the prosecutors' view that this is a widespread practice. Long ago, before Dotcom went Dotbomb, I worked for a firm where the CIO was being paid kickbacks by our hardware reseller. He was terminated for other reasons and, shortly after he left, our head of network ops got a call from the distributor asking where they should s…

When I was in law school, I felt patronized by the amount of time we spent talking about conflicts of interest because it seemed so obvious to me. In retrospect, having read so many of the disbarment announcements in the bar association newsletter, it's clear that a great many people do not understand what a conflict of interest is.

Re: Former Netflix executive convicted of receiving bribes from contractors

#65

Post by omarhaneef »

One item seems to have caused a lot of confusion in the comments so I will take a stab at clarifying:

It is perfectly legal for Netflix to ask for options or any other consideration in exchange for the contract. Companies do this sort of thing frequently. They know that merely signing a large contract with a large firm will increase the value of the contractor.

It is not legal for someone working for Netflix to ask for shares in their own personal capacity as individuals. That is what runs afoul of the law.

Re: Former Netflix executive convicted of receiving bribes from contractors

#66

Post by NikolaNovak »

earthscienceman wrote: post #7
autarch wrote: post #6

Earlier quoted context omitted.

The first sentence of the second paragraph says: "There was just one catch to landing that deal: It had to hire the streaming company’s vice president of IT operations, Michael Kail, as a consultant and an advisor, and pay him with fees and stock options." That seems pretty clear to me.

It seems very unclear to me. I don't understand why that's illegal or wrong. Someone was hired and paid using fees and stock options? Seems fine to me. I don't understand corporate structure enough to understand why that's problematic... “leveraged his status as a leader of the IT community in Silicon Valley to subvert the trust of Netflix and others to profit at their expense” How did he leverage it in a way that wa…

The way I see it:

- I work in purchasing approval position for company A

- Company B would like to do business with Company A

- If I say "B, I can get you deal with my employer A, but you need to give me extra money" - this is against every business conduct guideline / contract / terms of employment in every company I worked for, and against law in many jurisdictions.

In case that somehow slipped / you missed it: person was SIMULTANEOUSLY employed by A, while being given money by B to approve things on behalf of A. That's simple kickback / bribery.

It wasn't a morally-dubious but frequently-legal case of "revolving door" where a person does this sequentially. They were approving deals as exec for netflix, and earning money to approve those deals by small companies, at the same time.

Re: Former Netflix executive convicted of receiving bribes from contractors

#67

Post by capableweb »

paulpauper wrote: post #57

The shady-sounding plot was described by the government during a criminal trial earlier this year in San Jose federal court. Kail was found guilty of more than two dozen fraud and money laundering counts. At his sentencing Oct. 19, prosecutors will ask that he get a stiff punishment of seven years in prison as well as be ordered to pay fines, restitution, and forfeit a $3.3 million home in Los Gatos, California. That…

One case doesn't prove anything. There are thousands of cases showing that white collar crimes are in fact punished less than other types of crimes.

Re: Former Netflix executive convicted of receiving bribes from contractors

#68

Post by Phillip98798 »

Well, I'll be losing sleep hoping Netflix can make it through this tough time. Seriously, is there one person alive who believes the guy should get seven years in prison? Fire him, do your character assassination thing, but prison time? Why are our tax dollars being used to defend a multi-billion dollar corporation? Let Netflix run its own company. Change compensation structure or something to reduce corruption. Douche or not, this is not behavior worthy of jail time.

Re: Former Netflix executive convicted of receiving bribes from contractors

#69

Post by colpabar »

paulpauper wrote: post #57

The shady-sounding plot was described by the government during a criminal trial earlier this year in San Jose federal court. Kail was found guilty of more than two dozen fraud and money laundering counts. At his sentencing Oct. 19, prosecutors will ask that he get a stiff punishment of seven years in prison as well as be ordered to pay fines, restitution, and forfeit a $3.3 million home in Los Gatos, California. That…

> goes to show how while collar crimes are not punished more leniently

No, it goes to show that the only white collar crimes that are stiffly punished are those against other rich people.

Re: Former Netflix executive convicted of receiving bribes from contractors

#70

Post by jsmith99 »

spenczar5 wrote: post #49
ghaff wrote: post #32

Earlier quoted context omitted.

I can't imagine any BoD would be cool with an executive responsible for signing deals getting essentially paid for signing those deals given what a clear conflict of interest that would be. And the BoD itself would probably be found to be failing their fiduciary responsibility under those circumstances.

I could imagine some slippier cases. A lot of successful startup executives have a bunch of money and invest it in startups. They (of course) pick ones that they think will do a good job in their space. It isn't that crazy to imagine them recommending using a startup they've invested in, and it's also possible to imagine them making a convincing case to a board that the startup is the best option available. They stil…

That's not a grey area at all. If you are a director and you are pushing your board to drive business to a company you have a significant stake in, you MUST disclose that.

A grey area would be more like whether you should offer to leave the meeting while they discuss the proposal.

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