Technology

Netflix IT Exec forced employees to use products from vendors who had bribed them

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Netflix’s former vice president of IT operations was convicted of taking bribes from technology providers in exchange for placing contracts with Netflix, the US Department of Justice said on Friday. The former Netflix VP’s illegal system forced coworkers to use a variety of products, including one that suffered from “severe” performance issues and one that Netflix employees objected to because they preferred a different product to which the Company already paid, the DOJ said.

Michael Kail, the former Netflix executive, has been convicted of cable fraud, postal fraud and money laundering by a federal jury. He used his position at Netflix to approve contracts for vendors who gave him bribes and kickbacks, the DOJ’s announcement said:

As Netflix’s Vice President of IT Operations, Kail approved contracts to purchase IT products and services from smaller third-party vendors and approved their payments. The evidence showed that Kail accepted bribes in the form of setbacks from nine tech companies offering Netflix products or services. In return, Kail approved contracts for the delivery of goods and services to Netflix worth millions. Kail ultimately received over $ 500,000 and stock options from these outside companies. He used his kickback payments to pay personal expenses and buy a home in Los Gatos, California on behalf of a family business.

“Michael Kail had immense power to approve valuable Netflix contracts with small technology vendors, and he manipulated that process to unlock a stream of cash and stock setbacks for himself,” said acting US attorney Stephanie Hinds.

Guilty on 28 points

Kail was Vice President of IT Operations at Netflix from November 1, 2011 to August 2014 when he moved to a job at Yahoo. Netflix sued Kail in a California supreme court in Santa Clara County in November 2014, but dropped the case a year later.

Kail was charged in 2018 on 19 wire fraud cases, three postal fraud cases and seven money laundering cases. Kail was found guilty in 28 of the 29 cases, with the jury finding him not guilty of counting a wire fraud. The jury also found that Kail’s Los Gatos house, which had been bought with laundered money, could be forfeited to the government. The case was heard in the US District Court for the Northern District of California.

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

Kail started a company to get bribes from Netflix contractors, the DOJ said.

“To facilitate kickback payments, the evidence in the process showed that Kail founded and controlled a limited liability company called Unix Mercenary, LLC,” the DOJ said. “Unix Mercenary was founded on February 7, 2012 and had no employees and no company location. Kail was the sole signatory of its bank accounts.”

Two days prior to registering that company, “Kail signed a sales representative agreement to receive cash payments from Netenrich, Inc. equal to 12 percent of Netenrich’s invoices to Netflix for the human resources and IT services contract for Netflix “says the DOJ’s announcement. “Later in 2012, Kail received 15 percent of all settlement payments that VistaraIT, LLC, a wholly-owned Netenrich company, received from Netflix. From 2012 to 2014, Netenrich paid Unix Mercenary approximately $ 269,986 and VistaraIT paid Unix Mercenary approximately $ 177,863 Hired in mid-2014 when Kail left Netflix. “

“Severe” performance problems

Kail also had kickback agreements with providers Platfora, Sumo Logic, Netskope, Maginatics, ElasticBox, and Numerify, the DOJ said. For example, in June 2012, Kail “became a consultant and was granted options for shares in Sumo Logic,” and “authorized and signed a supplier agreement between Netflix and Sumo Logic on behalf of Netflix,” the DOJ said, adding:

The agreement resulted in over $ 300,000 in payments from Netflix, approved by Kail to Sumo Logic. Kail then approved another $ 800,000 two-year deal with Sumo Logic, despite feedback from his IT team about the product’s underperformance. Kail confirmed the problem in an email to Sumo Logic, saying: “[i]It’s getting harder and harder for me to promote sumo internally and then continue to have serious performance issues. “

With Platfora, “Kail signed a multi-tier contract for $ 250,000 per year on behalf of Netflix,” urging its Netflix employees to find a use for the product despite their objections and preference for a competing product that Netflix had already paid for . “said the DOJ.” When a request from the Netflix CEO followed, Kail falsely denied that he was officially working with Platfora. Kail resigned from his advisory position at Platfora the next week. “Kail had” signed an “advisory agreement” with Platfora that gave him the right to purchase up to 75,000 options, representing approximately 0.25 percent of the company. “

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Kail also signed a contract to become an advisor to Maginatics, which allowed him to buy up to 30,000 shares. He first approved the purchase of “a small amount of storage from Maginatics” on behalf of Netflix, “then increased the purchase of Netflix from Maginatics tenfold,” and “made approximately $ 120,000 when Maginatics sold EMC the next year DOJ that was sold “said. Kail also signed contracts to receive “$ 5,000 monthly advice to Netskope” and stock options from Netskope, ElasticBox and Numerify.

“The evidence also showed that many of the Netflix IT staff who were testing the products were unaware that much of the startup software was being paid for by Netflix, assuming they were instead unpaid” pilots “of the untested software what was routine, “said the DOJ.

Netflix has eliminated the role of VP of IT Operations

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

After Kail left Netflix, the Wall Street Journal reported that the streaming company had decided not to hire another vice president of IT operations and that “[m]All of Mr. Kail’s previous duties have been transferred to a different employee. “

“Mike’s departure allowed us to combine data center and streaming operations under an executive who is working in a very similar role,” said a Netflix spokesman at the time.

Listing image by Getty Images | Krisanapong Detraphiphatic

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Steven Gregory