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The Courts Software

Three Former Netflix Software Engineers Charged With Insider Trading By SEC (deadline.com) 33

Posted by BeauHD from the caught-red-handed dept.
An anonymous reader quotes a report from Deadline: Three former Netflix software engineers are among those who have been charged by the U.S. Securities and Exchange Commission for alleged insider trading. In a complaint (PDF) filed in federal court in Seattle, the regulatory agency says the engineers and two associates generated more than $3 million in profits from a "long-running scheme." The cornerstone of the setup, according to the complaint, was confidential information they obtained about Netflix subscriber growth. Subscriber numbers at Netflix or, more recently, Disney and other companies, have been central to Wall Street's embrace or rejection of stocks in recent years.

The SEC's complaint, Sung Mo "Jay" Jun was at the center of a long-running scheme to illegally trade on non-public information concerning the growth in Netflix's subscriber base. The complaint alleges that Sung Mo Jun, while employed at Netflix in 2016 and 2017, repeatedly tipped this information to his brother, Joon Mo Jun, and his close friend, Junwoo Chon, who both used it to trade in advance of multiple Netflix earnings announcements. After Sung Mo Jun left Netflix in 2017, the complaint says, he obtained confidential Netflix subscriber growth information from another Netflix insider, Ayden Lee. Sung Mo Jun allegedly traded himself and tipped Joon Jun and Chon in advance of Netflix earnings announcements from 2017 to 2019. The SEC alleges that Sung Mo Jun's former Netflix colleague Jae Hyeon Bae, another Netflix engineer, tipped Joon Jun based on Netflix's subscriber growth information in advance of Netflix's July 2019 earnings announcement.

The SEC said its market abuse unit uncovered the trading ring by using data analysis tools to identify the traders' suspicious run of success. "We allege that a Netflix employee and his close associates engaged in a long-running, multimillion dollar scheme to profit from valuable, misappropriated company information," Erin E. Schneider, director of the SEC's San Francisco office, said in a press release. "The charges announced today hold each of the participants accountable for their roles in the scheme." The defendants allegedly tried to evade detection by using encrypted messaging applications and paying cash kickbacks," added Joseph Sansone, Chief of the SEC's market abuse unit. Sung Mo Jun, Joon Jun, Chon, and Lee have consented to the entry of judgments, the SEC said. If approved by the court, the judgments would permanently enjoin each from violating the charged provisions, with civil penalties to be decided later by the court. Sung Mo Jun also agreed to an officer and director bar. Bae consented to the entry of a final judgment, also subject to court approval, and imposing a civil penalty of $72,875.
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Three Former Netflix Software Engineers Charged With Insider Trading By SEC More

Three Former Netflix Software Engineers Charged With Insider Trading By SEC

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  • My math may be wrong. (Score:4, Insightful)

    by PseudoThink ( 576121 ) on Wednesday August 18, 2021 @05:53PM (#61706247)

    Joon Jun traded Netflix securities in advance of Netflix’s July 2019 earnings announcement and generated illegal profits of $72,875.

    If the civil penalty is less than or equal to the profits, doesn't this basically translate to the justice system giving its tacit approval for bad behavior? It basically says "if you don't want us to take your profits, next time don't get caught". This is basically the same sort of penalty given to banks and corporations, so I guess it fits.

    • yeah, missing a couple of zero's at the end of that penalty.

    • Re: (Score:2)

      by dfm3 ( 830843 )
      Of course your math is right. You know that disproportionately large penalties are only for the little guy, right? You can be damn sure that if someone was caught shoplifting a small item, or was found to be in possession of a few grams of some drug, or was charged with DUI because they started the car to warm up while waiting for their sober DD to come out of the restaurant, their cost between fees, court costs, bills for incarceration, and loss of wages while in jail would be more than $72k.

      • Gotta teach these small fries a lesson. Sheep need to know they're sheep, can't have them runnin round thinkin they're lions

    • Re:My math may be wrong. (Score:5, Informative)

      by timeOday ( 582209 ) on Wednesday August 18, 2021 @06:49PM (#61706373)
      Bae apparently was not a central character and did not trade on the information: " In one of these discussions, according to the SEC, Bae advised Joon Mo Jun to sell Netflix shares, knowing that Netflixâ(TM)s subscriber growth would come in below the analystsâ(TM) forecast... Bae, who left the company in 2019, was not charged in the criminal case, though he is charged in the SEC complaint."

      So, the hammer has not yet dropped on those who did the trades and profited from them.

      https://www.yahoo.com/entertai... [yahoo.com]

      • Good to know, thanks!

      • Re: (Score:2)

        by rastos1 ( 601318 )
        Forgive me for being ignorant how market trading in US works, but ... if I tell someone that ACME corp. is going to perform a) below resp. b) above market expectations and therefore he/she should a) sell resp. b) buy ACME stocks and it turns out to be true (the probability is roughly 50%), then I can be charged with insider trading?
        • If that information came from non-public information, then yes.
          That's one of the rules for publicly traded companies.
          If you're leaking non-public information, then you can get nailed for securities fraud.

          If you determined via public information where the stock was going to go, and you were right, that just makes you a smart trader.

    • Two problems with your math.

      According to the SEC complaint, Bae's profit was $0.
      So a penalty of $74,000 is his profit times infinity.
      The penalties levied on the people who profited will be decided by the court.

      Bae was the guy who said Netflix is doing well.

      Secondly, keep in mind Bae did a consent decree (a plea bargain). He hasn't been found guilty of anything. You know how when you drive without a valid license and instead of going to trial, you can renew your license within 10 days and just pay a $10 fee?

      • Good info, thanks! I was confused that the penalty imposed by on Bae was exactly the same ($72,875) as the illegal profits made by Joon Jun, cited in item 32 of the case document. Seemed pointed to me.
      • Yeah, he did it for the shear sport of it.

        • From the SEC documents laying out their case, it looks like he gave the information either:

          A. Basically to look cool, to kinda show off that he knows something that not everyone knows. We see people do this every day on Slashdot - often when they don't actually know anything.

          B. Because he didn't think that saying subscriber numbers look good would actually get him trouble. He may have thought it's no big deal to say that sales are good right now.

          Or a combination of B and C. I suspect that combination.

          Again,

          • It's probably a little more casual than that. Former work colleague comes up to and says...

            "heeey! how's things going? keeping busy?"
            (fried out workmate complains about workload)
            "oh you been working overtime to ramp up capacity? too bad pal.... you should stop and smell the roses some time hey?"

            ...former work colleague runs off and makes trades

    • The complaint did not allege that Bae gained any monetary profit, as it was Bae that *provided* the insider information. The amount of the civil penalty imposed against Bae is equal to the profit that Joon Jun made from that insider information.

      That's just one civil penalty against one person, which is known now because Bae agreed to the civil judgment ("consented to the entry of a final judgment"). The other components of the judgment are not final.

    • Get elected add several zeros to the inside trading benefits and everything will become legal.

    • Read the article next time

  • Great (Score:3)

    by ArchieBunker ( 132337 ) on Wednesday August 18, 2021 @06:28PM (#61706321)

    Next can they look into congress?

  • Wow (Score:3)

    by Darkling-MHCN ( 222524 ) on Thursday August 19, 2021 @12:33AM (#61706839)

    Woa... $3 million in profits. These guys really caught some big fish this time hey?

    Meanwhile billions of dollars are made by bigger players on a daily basis for decades acting upon similar information.

    • And that's not to mention all the congressmen and senators who use their insider information to consistently outperform the market with their stock transactions.

    • Re: (Score:1)

      by dysonlu ( 907935 )

      EXACTY.

      Those Netflix engineers didn't know and weren't part of the "inside baseball" of Wall Street.

  • Can it be used to uncover epic losers who only make bad trades? They should also be held accountable, or at least send them a "GIT GUD" postcard.

  • On one hand, I like the fact that the SEC is able to trace insider trading and catch schemes which use cutouts and third parties.

    On the other hand, I wonder how many degrees of Kevin Bacon are an affirmative defense against insider trading for someone who happens to make money guessing that one of the major streaming services might increase its subscriber base before a publicized earnings/shareholder announcement?

    It seems kind of trivial to have a casual conversation with a more remote family member (cousin

  • Man, how many filters do they have to set for members of Congress and the Senate in the US alone so they don't show up in the results form the market abuse data analysis tools

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