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Netflix IT exec Driven Workers to Utilize products from vendors that bribed him

Guilty verdict for ex-Netflix exec — Jury finds ex-Netflix VP guilty of awarding tech contracts in exchange for bribes. Jon Brodkin – May 4, 2021 8:57 pm UTC Netflix’s former vice president of IT operations was convicted of taking bribes from technology vendors in exchange for awarding them contracts with Netflix, the US Department of…

Guilty verdict for ex-Netflix exec —

Jury finds ex-Netflix VP guilty of awarding tech contracts in exchange for bribes.

Netflix’s former vice president of IT operations was convicted of accepting bribes from tech vendors in exchange for awarding contracts with Netflix, the US Department of Justice announced Friday. The former Netflix VP’s illegal scheme forced coworkers to use a variety of products, including one which suffered from”severe” functionality issues and yet another that Netflix employees objected to because they preferred a distinct product the business was already paying for, the DOJ said.

Michael Kail, the ex-Netflix executive, was convicted by a federal jury of wire fraud, mail fraud, and money laundering. He utilized his position at Netflix to accept contracts for vendors that gave him bribes and kickbacks, the DOJ announcement stated:

As Netflix’s Vice President of IT Operations, Kail approved the contracts to buy IT products and solutions from smaller outside seller companies and approved their obligations. The evidence demonstrated that Kail accepted bribes from’kickbacks’ from nine tech companies providing products or services to Netflix. In exchange, Kail approved millions of dollars in contracts for products and services to be provided to Netflix. Kail ultimately received over $500,000 and stock options from these external companies. He used his kickback payments to pay personal expenses and also to buy a home in Los Gatos, California, in the name of a family trust.

“Michael Kail wielded immense power to approve valuable Netflix contracts with small tech vendors, and he rigged that process to unlock a stream of cash and stock kickbacks to himself,” acting US Attorney Stephanie Hinds explained.

Guilty on 28 counts

Kail was VP of IT operations at Netflix in November 1, 2011, until August 2014, when he changed into a job at Yahoo. Netflix sued Kail in a California superior court in Santa Clara County at November 2014 but dropped the case a year later.

Kail has been indicted in 2018 on 19 counts of wire fraud, and three counts of mail fraud, and seven counts of money laundering.  Kail had been found guilty on 28 of those 29 counts, together with the jury finding him not guilty of one count of wire fraud. The jury also found that Kail’s Los Gatos home, bought with laundered money, can be forfeited to the government. The case was held in US District Court for the Northern District of California.

“Kail faces a maximum sentence of twenty years in prison and a fine of $250,000, or twice his gross gain or twice the gross loss to Netflix, whichever is greater, for each count of a wire or mail fraud conviction, and ten years in prison and a fine of $250,000 for each count of a money laundering conviction,” the DOJ said. A sentencing hearing is scheduled for September 14, 2021.

Kail set up a corporation to receive bribes from Netflix contractors, the DOJ stated.

“To facilitate kickback payments, the evidence at trial showed that Kail created and controlled a limited liability corporation called Unix Mercenary, LLC,” the DOJ said. “Established on February 7, 2012, Unix Mercenary had no employees and no business location. Kail was the sole signatory to its bank accounts.”

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

“Severe” performance issues

Kail also had kickback agreements with the sellers Platfora, Sumo Logic, Netskope, Maginatics, ElasticBox, and Numerify, the DOJ said. For example, Kail”became an advisor and received options for shares in the company Sumo Logic” in June 2012 and then”authorized and signed on behalf of Netflix a vendor agreement between Netflix and Sumo Logic,” the DOJ said, adding:

The agreement contributed to over $300,000 in obligations by Netflix, accepted by Kail, to Sumo Logic. Kail then approved a further $800,000 contract with Sumo Logic, despite his IT team feedback about the product underperforming. Kail acknowledged that the problem in an email to Sumo Logic, saying”[i]t is becoming increasingly difficult for me to champion Sumo internally and then continue to have severe performance issues.”

With Platfora,”Kail signed on behalf of Netflix a multi-stage $250,000 per year contract” and 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,” the DOJ said. “When an inquiry from the Netflix CEO ensued, Kail falsely denied that he was formally working with Platfora. Kail resigned from his advisory position at Platfora the next week.” Kail had “signed an ‘advisory’ agreement with Platfora that provided him with the right to purchase up to 75,000 options, approximately . 25 percent of the company.”

Kail also struck a deal to become an advisor to Maginatics, permitting him to buy up to 30,000 stocks. He initially authorized the purchase of”a small amount of storage from Maginatics” on behalf of Netflix,”then increased Netflix’s purchase of storage from Maginatics by tenfold” and”made approximately $120,000 when Maginatics was sold the next year to EMC,” the DOJ said. Kail also struck deals for”$5,000 per month consulting for Netskope” and stock options from Netskope, ElasticBox, and Numerify.

“The evidence further showed that many Netflix IT employees involved with testing the products did not know that many of the startups’ applications was being paid for by Netflix, presuming it rather to be outstanding’pilots’ of their untested software, which was regular,” the DOJ said.

Netflix eliminated VP of IT operations role

Kail left Netflix to become CIO of Yahoo, where he stayed less than a year before co-founding a venture capital-backed startup called Cybric, which was later renamed ZeroNorth.

After Kail left Netflix, The Wall Street Journal reported that the streaming company decided not to hire another VP of IT operations and that”[m]any of Mr. Kail’s former responsibilities are given to another employee.”

“Mike’s departure allowed us to unite data centre and streaming operations under one executive who serves in a really similar capacity,” a Netflix spokesperson said at the time.

Listing image by Getty Images | krisanapong detraphiphat

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