The DOJ press release is clearer than this article is:<p><a href="https://www.justice.gov/usao-ndca/pr/former-netflix-executive-convicted-receiving-bribes-and-kickbacks-companies-contracting" rel="nofollow">https://www.justice.gov/usao-ndca/pr/former-netflix-executiv...</a><p>Some fun details:<p>Kail did his criming through a shell LLC he set up called "Unix Mercenary".<p>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).<p>They got him on mail fraud, wire fraud, honest services fraud, and money laundering. The victim of the fraud was, of course, Netflix itself.<p>Additional fun facts from PACER:<p>He's seeking to exclude his shares in Sumo Logic and Netskope from forfeiture, arguing that they were largely the result of his own hard work, which takes some serious chutzpah.<p>All of this apparently happened back in 2014 (the conviction is recent). If you're wondering what Netflix thought of all this, Kail apparently left Netflix for a job at Yahoo, from which he was fired after Netflix found out about his scheme and told Yahoo.<p>Kail's sentencing memorandum is a fun read (again: chutzpah). For instance, this gem:<p><i>Further, though Mr. Kail complained of problems with Sumologic (as one would see with any new startup), the product itself was “useful,” according to Ashi Sheth. (R.T. Vol. 8, p. 1670-71). As described below, at the time, Sumologic saved Netflix from paying for a far more expensive and inferior product called Splunk.</i>
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
One item seems to have caused a lot of confusion in the comments so I will take a stab at clarifying:<p>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.<p>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.
> 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.<p>I completely get how a startup would take this deal, however gross it is, but what I don't understand is how the exec got away with it from Netflix's side. And the fact this wasn't just 1 but 8 other startups he did this to/with as well. I can't tell from the article if Netflix was aware or unaware of this "Agreement" and if they weren't aware... how? Did no one ever mention "Oh yeah, we hired Kail like you asked/required us to"?
This is so common it’s hard not to do. Not doing it definitely stunted my startup but it’s a lifestyle company and I don’t mind building slower.<p>Edit: I should add that while I was working at a FAANG (before doing a startup) the team I was on would constantly be blocked from building X only for a VP to buy a company that said they did X but didn’t. Because we still needed X we would buy a new company each year. We could tell the VP was setting them up to sell to us. We would joke about leaving to do a start up for the VP to not only make more money but so we could finally have a working X in the company.<p>Edit2: With my current start-up it's not uncommon that we are instructed to sell to a customer via a nominated 3rd party. We don't know for sure, but we strongly suspect, that the 3rd party markup is how the executives are skimming off extra money. At least it keeps us out of it.
>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.”<p>So very humble of him.
So this guy traded his reputation and possibly his freedom for some small kickbacks? When his other option was stay at Netflix as a VP? When RSUs were around $9 (current stock price: $635)?<p>I wonder how much money he threw away assuming he had stayed 5-6 years instead. $5m? $10m?
This is so incredibly common and is actually taught as tactic at many accelerators.<p>You can form "customer advisory boards" which basically pay small percentages of common to early users to use the product.<p>Like, seriously, more than half of the companies funded by YC do this. I think this is the norm more than the outlier.
Is this the person Netflix refers to in its infamous culture memo?<p>"On rare occasions, freedom is abused. We had one senior employee who organized kickbacks on IT contracts for example. But those are the exceptions, and we avoid over-correcting. Just because a few people abuse freedom doesn’t mean that our employees are not worthy of great trust."<p><a href="https://jobs.netflix.com/culture" rel="nofollow">https://jobs.netflix.com/culture</a>
This article is a bit old (back in May), I'm curious what the latest is.<p>One thing I find extremely strange is that, I looked this guy up online, and his Twitter feed is just so, well, "tech mundane". He seems to tweet nearly daily, e.g. yesterday he tweeted "Love the new Macbook Pro features/options, but to armchair #cloud, I'd limit the local storage option and improve the performance/availablity/resiliency of #iCloud" (which to be honest seems like a rather dumb tweet to me but that's besides the point).<p>I mean, I don't expect the dude to go into hiding or anything, and to each their own, but if I were facing significant prison time, and I knew I was a pretty big story in the tech world because I was guilty of serious corruption, the last thing I would be doing is making random tech tweets.
This is very common in many non-FAANG companies. The way these guys do it is to set up a third party staffing company, say X, owned by relatives and friends, then buy services (usually contractors) through this third party company. Usually, large companies have some vendor management tool. Here, the hiring manager picks candidates that come from X.<p>When I was working at AT&T in New Jersey, my manager always hired contractors from one third party company, which is owned by the wives of his brother (then another ATT employee) and other ATT employee. Eventually, many managers colluded with this particular third party company so much so that other third party staffing companies couldn't place any people.<p>So, these staffing companies complained to the Ethics department. ATT Legal started investigation, and fired my manager, his brother (another employee), another guy. They couldn't do much further due to these reasons.
(a) the staffing company is owned by the wives of the two employees
(b) the staffing company is NOT the direct vendor of ATT. The primary vendor is another entity, who takes $1 per hour per candidate.<p>This kind of fraud is so common in this industry.
Upon reading:<p>“he stole the opportunity to work with an industry pioneer from honest, hardworking, Silicon Valley companies.”<p>…I had to double-check this was coming from justice.gov, not a satire site or PR blog. That isn’t to say that there aren’t honest and/or hardworking SV companies, or that they weren’t wronged. It’s just never a phase I’ve seen before.
I have heard of many startups bringing early customers onto their advisory board - it seems like a relatively common practice. I am curious what makes this fraud? The timing? Or the fact that the Netflix VP did not disclose this to His employer?
I do not understand this. I mean, politicians do this all the time and do not go to jail (Spain).<p>I do not mean people offer themselves for briving.<p>But did anyone ever think what would happen if politicians did not have much power to regulate? Companies would not be able to lobby.<p>That means there would not be nearly as much incentive to brive as there is today.<p>Once a regulator is in the middle, the incentive for corruption is there.<p>I do not think people use Netflix because of the corrupt business of this guy. They use it because it is entertaining or find it useful. The same way people will keep studying Picasso (I hate his art, but anyways) because they consider it art, and he was a misogynist.<p>But his art is his art, the same way Netflix is entertaining for some people.
Why weren't these companies charged as well? They are paying bribes to an executive to use their products and services.<p>If you were caught paying bribes to a (corrupt) government official, wouldn't you be breaking the law?
I just assumed this is how business was done at that level. For example in the health insurance industry "Producers" receive all shorts of benefits from carriers to push their plans onto clients.
Someone else mentioned politics, but I think it's really apt to draw some lines since these are federal crimes.<p>Politicians and government agents will work toward getting legislation or contracts through and then "retire" to work privately for the same companies. This is probably not legal (i.e. bribery), but it's basically impossible to prove the crime. On a similar note, politicians can ask for contributions as part of lobbying efforts that go directly to their campaigns. That might not go right into their pocket (which somehow make it legal), but it certainly makes continuing their career easier.<p>I don't think either is particularly morally just, but the similarities are pretty stark. The government (and public) end up losing and becoming the victim just like Netflix was the victim of these actions.
> Kail then urged his Netflix employees to find a use for the product, despite their objections and preference for a competing product that Netflix was already paying for.<p>There should be a special aggravating attachment for such abuse of employees :)
We met him at tech conference in SV almost a decade ago.<p>He passed on our info of saas pass to a "competitor" onelogin (which got acquired recently). Turns out they were already using onelogin. No idea if he had shares in onelogin at the time.<p>Seprately there was a Google Apps (later rebranded to G Suite and now Google Workspace) conference at Fort Mason around 2013 or 2014ish. At that event a Google employee Clay Bavor said they have an internal saying for product rollouts and new features. It was WWMKD. What would Mike Kail do?<p>I guess don't do what Mike Kail would do.
This case is particularly interesting because he was convicted by a jury of the somewhat controversial charge of honest services fraud[1] in addition to the more common criminal fraud charges. Jeffrey Skilling (of Enron fame) was convicted under the same law (also among other charges) and successfully appealed to the Supreme Court where his convicted was reversed and his sentence was subsequently reduced. <i>Skilling v. United States</i>[2] and <i>Black v. United States</i>[3] (Conrad Black, the Canadian media mogul) significantly narrowed the scope of the crime. The Court came <i>eversoclose</i> to finding the law unconstitutionally vague but instead limited its applicability to situations where a fiduciary duty exists and there is evidence of bribery or a kickback scheme. Since <i>Skilling</i> the charge has most often been used for holders of political office, like Rod Blagojevich[4] but prosecutors couldn’t even get the charge to stick there. (Trump pardoned both Black and Blagojevich before leaving office.) More recently the charges have been brought against participants in the “Varsity Blues” college admissions scandal.<p>The Supreme Court definitely left the door open for this law to be ruled unconstitutional so I’m curious whether any of the very wealthy and newly convicted-at-trial defendants will pursue the matter.<p>Edit: Reading the DOJ press release and the way it’s worded I’m not so sure whether Kail was convicted of honest services fraud. It seems there was one count for which the jury did not return a guilty a verdict and I’d bet it was this one.<p>[1]<a href="https://en.m.wikipedia.org/wiki/Honest_services_fraud" rel="nofollow">https://en.m.wikipedia.org/wiki/Honest_services_fraud</a><p>[2]<a href="https://en.m.wikipedia.org/wiki/Skilling_v._United_States" rel="nofollow">https://en.m.wikipedia.org/wiki/Skilling_v._United_States</a><p>[3]<a href="https://en.m.wikipedia.org/wiki/Black_v._United_States" rel="nofollow">https://en.m.wikipedia.org/wiki/Black_v._United_States</a><p>[4]<a href="https://en.m.wikipedia.org/wiki/Rod_Blagojevich_corruption_charges" rel="nofollow">https://en.m.wikipedia.org/wiki/Rod_Blagojevich_corruption_c...</a>
In case anyone is wondering, his sentencing (which was supposed to be Oct. 19) was pushed back to Nov. 15 at the last minute. I posted the court document on my twitter.
<a href="https://twitter.com/ChristieSmythe/status/1451208869724753927?s=20" rel="nofollow">https://twitter.com/ChristieSmythe/status/145120886972475392...</a>
Between this and that couple that tried to sell nuclear submarine secrets I feel like people are engaging in criminal activity for so little (relative) gain.<p>Per the article it seems like his total take was $500k. As VP of IT Operations at Netflix he must've been making at least that much per year. Seems crazy to me to take on that level of risk for not <i>that</i> much upside (if you're a well-paid tech worker).
Lots of comments here about how sentences are harsher for harming corporations and the extremely rich rather than common people. (See this case, Theranos, etc.)<p>Is it possible that Netflix is _funding_ (or providing substantial material support to) the prosecution of this case, a bit like we've seen in Chevron v Donziger?
See, he should have been an HR executive, instead.<p>HR execs are expected to pull this stuff as a matter of routine. The other CxOs know that if they prosecute their HR director, the next one will be just the same, or it will be hard to hire one. If your HR director doesn't, why would they be in HR?
I have never been involved with enterprise sales per say. Is this common practice in the industry? I mean, all the products mentioned in the PACER are fairly popular products. Also,what are the other alternative ways a new enterprise tech startup break into the industry.
Does anyone know how the actual conversation for something like this goes? I just can't imagine having the chutzpah to ask for a bribe. Is there some kind of euphemistic lingo people use to make it clear they want a bribe without saying the words?
Can someone explain why this is prosecuted as a crime rather than left as a matter for civil lawsuits? The only actual victim here seems to be Netflix, and they can afford to file their own civil suits.
Oh, just run of the mill bribery. It's a classic government bureaucrat trick done at a private firm. Seems unnecessary. Netflix VPs are well compensated, but there is no boundary for greed.
How many of their unethical practices actually waiting to be revealed?<p>They impudently promote tobacco smoking to the youth, how much they receive from tobacco companies, anyone knows?
So after reading the article, I'm still not sure of the crime, or the motivations (from netflix's perspective at least). Can someone help me?
<i>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.</i><p>That seems pretty stiff. goes to show how while collar crimes are not punished more leniently and how being rich does not shield one from justice, hardly.
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.
the HN admin changed the link I posted. this is unethical - You are fundamentally changing what I posted. As a product manager here is a better solution - A.) Add a clear indicator that admin changed the link to redirect B.) Delete my link and post yours.<p>Shawdow changing what users post is wrong.