Netflix Executive Sentenced to 30 Months for 700K Bribes, Kickbacks from Vendors

Every time this story comes up, the comments are filled with people proclaiming that kickbacks like this are totally normal and very common.<p>I can&#x27;t tell how much of it is random people projecting their cynicism onto the business world, or if it&#x27;s people who have been part of bribery&#x2F;kickback schemes themselves trying to normalize the behavior online.<p>Either way, cases like this should make it clear that the behavior is <i>not</i> a good idea.

I created a company around an Open Source Electronic Medical Records system I also created, ClearHealth. It took me a couple of years to realize we were losing deals for health systems not because our system was bad (it was great), not because our sales teams were bad (they were great) but because we weren&#x27;t engaging in kick-backs and outright bribery. This has become such a normalized part of business at institutions that it is extremely hard to be competitive if you don&#x27;t do it.<p><a href="https:&#x2F;&#x2F;www.justice.gov&#x2F;opa&#x2F;pr&#x2F;electronic-health-records-vendor-pay-155-million-settle-false-claims-act-allegations" rel="nofollow">https:&#x2F;&#x2F;www.justice.gov&#x2F;opa&#x2F;pr&#x2F;electronic-health-records-ven...</a>

This is not an uncommon practice in the Silicon Valley. Startup wants to business with Big Co., invites Big Co.&#x27;s decision maker (VP Marketing, CIO, CTO, CFO) to join the &quot;board of advisors&quot;. Then startups pays for expenses, travel and grant &quot;stock options&quot; to Big Co. senior manager.<p>Understand that ANY product has a &quot;side&quot; price tag, paid by granting options or &quot;payment for expenses&quot; to the senior individual. Another way to look at that. Ask ANY member of your board of advisors to disclose ANY conflict of interest.<p>If StartUp sells product&#x2F;services&#x2F;SaaS to BigCo. then BigCo. &quot;advisor&quot; should disclose ANY payment, direct or indirect, travel or non-travel, and ANY stock options.<p>This is what had to be done with the large drug companies, forcing them to disclose payments to providers&#x2F;medical doctors who had the authority to buy drugs. Full disclosure + penalties for lack of disclosure ---&gt; that was the end for the drug sales rep who were doling &quot;educational conference tickets, all expenses paid for you and your spouse, ALL expenses paid, and of course compensation for your time&quot;. Of course said conference had to happen in Tahiti, San Francisco, Seychelles, etc...

I&#x27;m glad to see the verdict and a relatively severe sentence handed down (I expected 6-12 months).<p>What Mike did was indeed unethical and fraudulent. It&#x27;s also extremely foolish and shows poor judgment on his part -- his role at Netflix was to lead the organization to identify and implement the best solutions for the company and its customers. Instead he saw the opportunity for short-term personal gain at the company&#x27;s expense, and by doing so he jeopardized his lifetime earnings potential that would have been many times greater. I hope this sends a message to anyone else in his position that there can be consequences.<p>I&#x27;ve been responsible for tens to hundreds of millions in annual expenditure, and to even have the appearance of vendor favoritism (let alone kickbacks, bribes, payoffs) is anathema to me. I have vendors that I like to work with because they do good work and they help me to make things happen, but even my favorite vendor is evaluated and earns the business on the merits every single time.<p>I have declined seemingly innocent gifts from vendors (and notified my management). I always turn down things like sports tickets and paid trips. I do let vendors pay for the occasional lunch, but only up to a point that I feel comfortable. Maintaining my independence is absolutely key to my role and my career.<p>I&#x27;ve also worked at places where even a paid for lunch is not acceptable. That won&#x27;t influence my decision-making one iota, but if those are the rules then I follow them.<p>Not everyone does that, but I don&#x27;t know anyone in the industry who thinks Mike&#x27;s behavior is OK. Anyone working for me who made unjustifiable decisions with vendor agreements would make me re-evaluate their position -- and if I found a pattern along the lines of Mike&#x27;s behavior, they would be dismissed and sued just like him.

Some of the vendors mentioned:<p>- VistaraIT, LLC<p>- Platfora, Inc.<p>- Sumo Logic, Inc<p>- ElasticBox, Inc<p>- Numerify, Inc.<p>- Docurated, Inc<p>- Maginatics, Inc.<p>Is what they did illegal too? Presumably with zero chance of being charged. I haven&#x27;t fully groked the limits of &#x27;fraud&#x27; and &#x27;money laundering&#x27; here in the US. These typically feel like they should be civil breach of fiduciary duty type cases.

I was there and saw some of this during my time at Netflix.<p>I&#x27;ve also been in the industry long enough to get my own sense of what is &#x2F; what is not reasonable.<p>The first thing, Netflix wise, is to understand their culture deck at the time. One of the main things was &quot;Act in Netflix&#x27;s best interest&quot;. That basically described their philosophy of how employees should act.<p>So, when signing a contract, where you get a 10% kickback, (eg the company pays $200&#x2F;hour and you get $20 as a commission, its better to have the company pay $180.)<p>Also, signing contracts that he was enriched by - stock, kickbacks etc. (he received what is now worth: $862,500 of sumologic, and $2,167,700 of netskope - trial document #276<p>He also signed contracts that were never deployed, had a long support lifetime, or didnt meet the companies needs - eg: Numerify, and docurated - trial document # 288<p>In some cases, I personally experienced us having to use tools that Mike had signed for that were not right for the job. Eg: Sumologic at the time was a horrendous product. It certainly was not a realtime logging system. Realtime was up to 15 minutes delayed. If you wanted realtime, it was all about syslog. I brought this up, and was told that we were using the product because of Mike, even though it clearly did not help our problems. Grep on the unix server was considerably faster and more up to date, (but it wouldnt have got Mike $2M of stock).<p>Mike also had me meet with him and various vendors who were pitching some fly-by-night ideas. In a normal world, I&#x27;d say they were very early startup ideas that weren&#x27;t a match for our needs. Now, I&#x27;m wondering if these were meetings where Mike was looking to get an &quot;advisory&quot; angle.<p>In summary, I&#x27;ve been to coffee, dinners, very nice meals etc. with vendors. I&#x27;ve had them invite me places for meetings, and I&#x27;ve gone with my companies permission and understanding. I&#x27;ve had non-compensated advisory positions. The difference though, is my company was aware of it, and I did not receive stock or engineer contracts such that I received kickbacks. Thats where the line was, and thats why he&#x27;s going to jail.

What this exec did was very illegal, but anyone in the startup scene would know that things like this are very common, but probably on a smaller scale.<p>Maybe there are no wads of cash changing hands, but I&#x27;ve personally seen contracts being earned less due to the feature set, but more because the startup got introduced to some C level and them applying downward pressure to choose that startup during the vetting process.<p>It&#x27;s kinda noticeable when you&#x27;re on a call with a big company&#x27;s tech team and they sound defeated when talking about the success criteria and stuff

The actual title is &quot;Former Netflix Executive Sentenced To 30 Months For Bribes And Kickbacks From Netflix Vendors &quot;. Mike left Netflix in 2014 and joined Yahoo and CIO for a moment before this all came out and Meyer put him on leave.

Why risk this even? Surely, he&#x27;s making much more than 700K as an exec in the first place.

Can someone with more legal expertise explain why he is charged with wire fraud and not &quot;accepting a kickback&quot;?<p>Is it legal to take bribes if you do it in a way that doesn&#x27;t create wire fraud? Was the crime taking kickbacks or was the crime being paid in a certain way (i.e. the LLC he created)?

I had a boss at a major university who might&#x27;ve done this had he thought he could get away with it. Instead, he kept his greed down to an &quot;acceptable&quot; level of theft of university property for personal use and exploitation of vendor&#x27;s client entertainment allowances.

Why is Vistara LLC not charged for bribing this guy ?<a href="https:&#x2F;&#x2F;www.linkedin.com&#x2F;company&#x2F;vistara" rel="nofollow">https:&#x2F;&#x2F;www.linkedin.com&#x2F;company&#x2F;vistara</a><p>I know anecdotally a lot of US based Indian Outsourcing companies, TCS, Infosys, Mahindra, HCL bribe the mid-senior IT executives by buying them offshore properties under LLCs. If you look at Avis, Disney and other corps, the top level IT execs are bribed to the gills by these companies.

Now this is what we need to see to effect change in corporate behavior.

Genuine question here. Who took him to court? Did I understand well it was a public institution&#x2F;Irs? There seems to be no mention of netflix (company) being involved in the trial on the accusation side.

The fact that &quot;this is common&quot; does not excuse the fact that it is wrong and unethical. This is similar to how Intel paid companies to not use AMD processors. It is anti-competitive behavior.

&gt; and serve a three term of supervision upon release from prison.<p>Is there a typo in there, is that just a weird legal term, or is it just me that has a hard time processing what that means?

I worked at a company where the CIO routinely bought technologies for us to use, but we never did as they were mostly pointless to our business. He also always wrote articles for the companies bragging how much the software improved our business. One time one company sent a PR person to interview us and they were astonished to find out we never used it. Long after I left he was perp walked out of the company by a new CEO; turned out they company finally hired someone with more tech knowledge than this guy. Of course he had been taking kickbacks but knew just enough to convince the other execs we &quot;needed&quot; it.<p>A week later he had another CIO job. I think he was fired from that one too.<p>No idea if he was ever put on trial, probably the case was too embarrassing to pursue.

I don&#x27;t even allow companies to invite me for dinner or lunch, except if we do it in a way where I pay one time and the business contact pays the other time out of our own pockets.<p>It is important to me that I am able to make the best possible decision at any moment. I don&#x27;t want someone else veing in a position where I can ve forced to do something I don&#x27;t want to do.

One thing that is interesting about this is not that these vendors made the initial suggestion of a kickback. Instead Kail said he would get them in as a vendor if they made him some important person at their company. So the idea of the kickback wasn&#x27;t from the vendor.

&gt; Shortly thereafter, Kail provided Platfora with Netflix’s internal information about Platfora’s competitors’ prices.<p>Do said competitors now have grounds for a lawsuit against Netflix itself?

When I read things like this, I can&#x27;t help but think of how <i>no one</i> went to jail after the 2008 financial crisis. $700k from a group of private companies? WHO CARES? Congress just said insider trading is ok when they do it, can we maybe go after some of that next time?

Note this is the former IT exec from 2014. These type of trials take a while to complete

Some previous discussion about the conviction 2 months ago:<p><a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=28918805" rel="nofollow">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=28918805</a>

I haven&#x27;t even gotten a new Datadog shirt in years :-(

Only $700,000? Must not have been very ambitious

The system isn&#x27;t much good if infractions against its rules go unpunished. Faith in the system is being restored.

Imagine being a Netflix executive and risking years of your life for $700,000

Shoulda been more like 120 months, but it&#x27;s better than nothin&#x27;

&quot;Kail facilitated the payments, the evidence at trial showed, by creating and controlling a limited liability corporation called Unix Mercenary, LLC.&quot;<p>i wonder how much the name choice had to do with the convinction<p>he could have definitely chosen something more tasteful lol

Imagine the money he has to pay in prison for protection

Unix Mercenary, LLC is brazenly on the nose.

If you&#x27;re poor and steal 700k you go to prison for life. If you&#x27;re wealthy and do it as an executive you get 1 year with good behavior.

Did he get feedback from his peers?

Did Netflix not pay him enough?

I love how it&#x27;s totally legal for the governor of Florida to send lucrative drug testing contracts to his wife&#x27;s owned company but a guy getting a few stock options from a client is illegal.<p>I guess we&#x27;ll just go back to big wads of cash in an envelope instead.

I just lost $5,000 this week and it’s pissing me off, so I can empathize.

Why is this even illegal? Perks in the industry is normal. People are always trying to get their own businesses front and center for contracts. Some of these companies just don&#x27;t have much to give out other than equity and what exactly is wrong about that?

If you get caught stealing $700,000 you&#x27;ve got a problem.<p>If you get caught stealing $700,000,000 the criminal justice system has a problem.

Does anyone feel like wire fraud is a catchall term for when some people are hellbent on sentencing someone, who didn&#x27;t do anything that was by itself a crime?<p>Shouldn&#x27;t this be a civil case between Netflix and this guy? Why is criminal justice system even involved in this? It looks like very bad way to spend tax payers money.