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

>I can't tell how much of it is random people projecting their cynicism onto the business world

Is this on HN? Because I rarely sees it. Most people working in Tech and specifically software development are so abstracted from these type of things they think they are extremely rare.

It is still a common thing though. At least it happens much more often than most people thought. And it is not cynicism but personal experience.

or not trying to normalize but pointing out that its already normalized to the point that you can’t be an effective employee due to competition with people winning deal flow via kickbacks

The actions in question occurred almost 10 years ago, how many people lost commissions and bonuses and promotions and jobs and relationships by trying to play fair?

acknowledging this isn’t being an apologist for it or condoning it

even the DOJ indictment only acknowledges Netflix shareholders being deprived of tiny tiny amounts of profits, not everyone at all the other companies in the wake over the last decade, which is kind of a slap in the face and like a joke that public servants actually bothered, using that rationale.

so with that reality the incentive is still there to kickback and relax

I’m sure every employee has to read their company’s code of conduct and those are quite unambiguous about what’s allowed and what isn’t and that which isn’t is serious and will get you fired --no company wants to have to mobilize lawyers and waste hundreds of professionally billed hours for an employee violating regulations.

The average American may earn something like 125k in 30 months. 700k in exchange for a small chance of 30 months in jail probably sounds like a good deal to a purely rational and amoral person.

  This was pay to play and the play was not delivered. Hence the blowback from upset "victims" coming after their money.

Kickbacks are common sorry man. Its harder in public sector because of the eyeson you but there are ways around it. You just have to be in the right position.

Kickbacks are almost never posecuted because both sidea get what they want.

>I can't tell how much of it is random people projecting their cynicism onto the business world, or if it's people who have been part of bribery/kickback schemes themselves trying to normalize the behavior online.

Or people who actually know about those things, having worked in/with/studied the various industries, without having "been part of bribery/kickback schemes themselves", and have seen them to be fairly widespread - that's a missing third option.

I added this, because the above comment is still that of the proverbial starry-eyed kid arriving with the bus to L.A. from Nebraska, and paints a false dichotomy that ends up with the same conclusion ("this can't possibly be widespread"):

(a) it's either cynical people (so this isn't widespread, it's just their cynicism that thinks so)

(b) or it's crooks looking to normalize their behavior (so this isn't widespread, it's just isolated "bad-apple" cases justyfing themselves)

Even merely studying different industries, you'll find such scandals (and worse) in some of the biggest companies on Earth, with upper management knowledge and encourangement, collaboration with local governments, cover-up and diplomatic protection from the company's own government, and so on.

Just an example, from one of the biggest companies in the world, with tons of different executives and branches involved, and with different corruption cases all around the world:

https://www.sec.gov/news/press/2011/2011-263.htm

https://www.sandiegouniontribune.com/sdut-lt-latam-siemens-b...

https://www.reuters.com/article/norway-siemens-idUSL13418322...

https://www.nytimes.com/2008/12/21/business/worldbusiness/21...

https://en.wikipedia.org/wiki/Siemens_Greek_bribery_scandal

How about IBM:

https://medium.com/worm-capital/the-ibm-hall-of-shame-a-semi...

https://www.wsj.com/articles/u-s-drops-multi-country-bribery...

https://fortune.com/2017/07/27/ibm-poland-investigation/

https://www.bbc.com/news/business-12793255

Microsoft?

https://www.zdnet.com/article/microsoft-to-pay-25m-to-doj-an...

https://www.reuters.com/article/us-microsoft-settlement-idUS...

GE and more:

https://www.cnbc.com/2019/05/17/fbi-targets-johnson-johnson-...

https://www.ojp.gov/ncjrs/virtual-library/abstracts/whistleb...

https://www.industryweek.com/the-economy/regulations/article...

A general study focusing on past:

"As the 2000s decade progressed, a different breed of corporate scandals began to surface. For example, companies such as ABB Limited, Daimler Chrysler, El Paso Corporation, General Electric, Halliburton, Lee Dynamics, Lucent Technologies, and Siemens AG were found guilty of violating U.S. law and consequently, also rattled shareholders’ trust (Cascini & DelFavero, 2008, p.27). The named businesses were found guilty of committing bribery (...)"

https://digitalcommons.sacredheart.edu/cgi/viewcontent.cgi?a...

And we haven't even got into weapons, aviation, construction, and medicine industry bribes (industries which are to bribes what Xerox PARC was for UI innovations!)

This guy was able to extract kickbacks from nine different vendors. So in fact, it looks quite a few companies have systems in place to "facilitate" deals if needed.

It’s human nature to scratch each other’s backs. It’s happening, will continue to happen, and there’s little which can be done.

It’s always a game of cat and mouse. Legalizing small time bribery where it can be done out in the open would probably be far more effective then advocating for things like increased workplace surveillance.

Thinking commerce can happen without corruption or kickbacks is just naive.

I'm always reminded that HN is global, and sometimes people are representing what's normal or common where they're sitting, not necessarily everywhere.

My question is how this could lead to jail time? I mean, its against policy, the employer can sue for damages, fire the person, etc. But to throw someone in jail for breaking essentially a corporate policy seems really off.

I know of people who AWS fully sponsored, including business class intercontinental travel, to attend re:Invent which is essentially a week long holiday party, by virtue of AWS bill.

Every vendor has marketing budget and a decent portion of it goes to keeping their point people at clients happy. You can call it kick back or whatever, it’s a matter of semantics.

So yes it is normal. And no it’s neither cynical and nor have I been involved in. But I’ve seen it happen around me. So I know it’s a routine thing.

Heh, I have been working for a some corporations in the last 10 years where there was a sort of kickback scheme in place.

Some times (very rarely a person got caught, no criminal charges) some timed it was known and nobody cared.

Some of my friend chose not to become managers because they did not want to get involved in the scheme.

what I don't understand is none of the companies that bribed him had criminal charges levied against them. doesn't this reek of companies doing bad ok, smash the ants?

More to the point, virtually every senior member of Presidential administrations do this almost blatantly, big-D or big-R, doesn't matter.

This was hundreds of thousands. Those are billions.

What's the difference? The person who got caught was a small fry and couldn't pull the strings.

Oh please. Ever watched Mad Men, or any other tv/film that shows the wining and dining of prospective clients by a sales person/team? Every time a sales person spends money on a prospective client is written off as an expense, so the gov't is pretty much condoning it.

There are tons of stories of big pharma sending doctors to lavish resorts in the guise of a "conference". Ever heard of payola? The music business has been based on bribes. Why would you think of the film business being different? Hell, the states are involved just as much with tax incentives to entice productions to use their state/cities as location for that production.

You're being quite cynical trying to wrap any person with knowledge of these payout schemes as being involved/complicit.

The behaviour of many execs I have worked with would be explained well by this sort of arrangement, but it could equally have been a mix of stubbornness and having no clue. It's politer to assume it was corruption.

Those of us not in elite circles have a little trouble getting worked up over the difference between something that looks like it's scummy, immoral cheating, but is legal, or the same, but illegal.

Same played out with the college entrance scandal. "Bribery is great and we love it a bunch—unless you do it wrong because you're not rich enough to do it right, then it's a big ol' no-no" is the message a great many received from that one.

The first time I heard someone talk about a "commission" in this context, I was totally confused -- "I thought salespeople got commissions, not customers?" -- until it all snapped into focus and I was like: "Oh." And from the way they talked, this was normal for B2B sales? So then I look at some decisions that have been made in companies where I've worked, and I wonder...

> I can't tell how much of it is random people projecting their cynicism onto the business world, or if it's people who have been part of bribery/kickback schemes themselves trying to normalize the behavior online.

I think most people don't understand the difference between an agreed to agency fee/reseller margin deal, a direct incentive program, and someone just taking money, on the side. Direct Incentives (also call spiffs) are where a supplier pays a bonus directly to the person who sold the deal. These are always agreed to between the companies and reported. Without permission of the employer, they could be very illegal or a major violation of your employment contract.

A rumor is that Reed Hastings made it his personal mission to ensure that Kail gets the right punishment for he breach the trust of freedom-and-responsibility that Netflix gave to its employees.

Well, do you think our politicians aren't in the same position of the esteemed Michael Kail, VP of Netflix IT Operations? People in power are going to be hit with sex, money, or power. Money, it seems, is just the easiest attack vector.

Did people ask you for bribes, did you say no, did you miss the hints, or did you just not know that you needed to do this?

This is both an insightful as well as an important comment.

Thanks for sharing it.

Readers of HN should take note - especially young up-and-comers.

This kind of full disclosure is terribly important to build and maintain trust in an organization. I've even go so far as to disclose my investment portfolio to the CFO and clarify the purchasing decisions when there is overlap. Back in the day my budget was in the ten's of millions and it wasn't uncommon to make a $1m purchase of servers and storage. The moral ambiguity of accepting something in turn for making a buying decision is really beyond the pale. Thank you for your great post.

IANAL, but in general: yes. Someone should be on the hook for paying bribes as well as for receiving them. At least, that's what every training on corporate bribery I've ever seen asserts.

From TFA:

    Evidence at trial showed that several more companies paid Kail.  Neither Netenrich, Vistara, nor any of the other companies were charged with criminal conduct.  Only Kail was charged with devising the criminal scheme that defrauded Netflix. 

Since Kail was charged for wire fraud and mail fraud (deceiving Netflix about his personal compensation and conflicts of interest), it seems possible that the companies could be charged with "conspiracy to commit wire fraud" for colluding with him? It's hard for me to say exactly how easy this would be to prove—I think it's pretty clear to say that most companies / people should know that paying someone on the side for inside information on competitors or paying the VP a % of all contracts is an act to defraud Netflix. So the "meeting of the minds" to commit fraud is there, and the actual fraud is there (because one of the participants in the conspiracy committed it). But obviously this stuff is complicated and i'm not a lawyer. Also, the companies themselves would probably be pretty hard to charge, rather than the individual sales reps who signed off on the payments.

It wasn't intentional, the headline was too long to fit.

He was a netflix executive when he took the bribe, so that seems completely acceptable: "Michael Kail used his highly compensated Netflix position to siphon cash and valuable stock options from his tech vendors,"

When you deal as a supplier to a big SV company, it can still happen that the employee asks you for a kickback. It's sad and it sucks.

It might be part of some cultural structure in place. He got caught..

Very well-compensated people apparently can get sufficiently unmoored from a moral compass that they 1.) think the rules don't apply to them and 2.) just don't stop to consider that morals/ethics aside what they're doing is a really dumb potentially life-ruining risk.

It probably wasn't just the $700k he was thinking about. I'd guess he was likely aiming for a larger sum over time.

Wealthy people usually still want more money, even past what non-wealthy people would consider enough.

Probably about 30 months of work ;)

I don't think all Vice Presidents as a rule make more than $700k

Our VP of <region> Sales was fired for stealing peoples lunches from the break room fridge.

There’s no limit to the amount of money one can waste.

There could be much more and the case only covered what could be proved.

Specific anti-kickback laws only exist at the federal level for specific industries within federal purview like healthcare (through departments like CMS). Wire fraud is more general but is an avenue for the justice department to prosecute behavior like this (the crime is not specific to orchestrating a kickback scheme but defrauding his employer for personal gain).

Maybe they don't leave a paper trail a mile wide and deep, unlike this clown?

> Two days before Unix Mercenary was registered with the California Secretary of State, Kail signed a Sales Representative Agreement to receive cash payments from Netenrich, Inc., amounting to 12% of any billings ...

This is not to excuse the criminality, but rather to suggest an unhappy likelihood that the great bulk of graft flows by more sophisticated arrangements.

Kind of, but he only got in trouble because he messed with other rich people's money.

It's a federal crime. The US Government took him to court. As for who tipped them off, thats a different question.

Likely the missing word is Year - ie: he get three years probation after release.

I'm 99% certain that should say "three-year term."

Also this, with directionality of "bribe" reversed:

>Mr. Kail chose which IT contracts were awarded by Netflix according to how he was able to bribe those companies to provide him with financial compensation

So did they hold him in prison from 2014 to 2021? What did he do during those years? There should be some law about time waiting for trial counting toward the sentence, which would also incentivize judges to work more quickly.

I'm waiting for the vendors to be punished as well.

Nah it's just a howto manual on not getting caught.

I know this is just an off-the-cuff quip, but the real answer is probably zero. He's minimum security. He's going to have very little problems like this, even as a rich white guy.

When I was locked up, I was in Max with mostly murderers. I got tricked out of a $10 phone card in my first week, and the guy said he'd protect me as a thank you. After I realized I'd been dumb I never made that mistake again. I found just being polite, but firm, was enough.

He'll be fine. He'll probably never get into a single fight. He'll be asked for commissary. He'll share some of his commissary, but everyone does that in prison anyway, especially with the guys that have nothing.

I had to look that up because I’m not familiar with the story, but it seems illegal in most other states. This Netflix case, by contrast, is federal. Still makes the Gov. actions seem sketchy

Whataboutism

> I guess we'll just go back to big wads of cash in an envelope instead.

Uh so wait are you saying that because the elected official isn't held responsible that we should then lower the bar to permit all bribery? That doesn't make any sense.

Florida is a state in which white collar criminals form a powerful voting bloc.

For another example, look at how college bribery schemes are illegal.

They're not illegal because they're unfair or immoral, they're illegal because the administrator is selling the spot that the college owns; it's not his/her spot to sell.

If the company wanted to be used by Netflix in exchange for equity, then they could make a deal with Netflix itself. This executive was essentially selling the rights to contracts (akin to spots) that he didn't have the right to sell.

Officially, the crime is fraud and the victim is Netflix, Inc. He defrauded the other employees and the corporate shareholders. He also laundered the money, which is also illegal and why the IRS got involved.

Kickbacks aren't the fundamental issue here. If this was a single-employee startup with no other investors or shareholders, this would be perfectly legal. Or if Netflix, Inc. had a policy that authorized individual executives to personally receive cash and stock from vendors as perks, then this would have been perfectly legal. However, as the article says, Netflix had an internal policy that he blatantly violated:

> Netflix policies prohibited conflicts of interest by its employees by its Code of Ethics and its “Culture Deck,” which required the disclosure of actual or apparent conflicts of interest and the reporting of gifts from entities seeking to sell products or services to the company.

It was illegal because the kickbacks were kept secret from Netflix. If there was full disclosure to netflix, (but not other companies) this would have been perfectly legal.

if you owe the bank 50,000, you have a problem, if you owe the bank 50,000,000, the bank has a problem

Bernie Madoff's damage was a few billion, depending on how you count it. Turned out was a problem for him, eventually.

https://www.cnn.com/2021/04/14/business/bernie-madoff-dead/i...

Because, cynicism (and specific elected officials) aside, the government has a vested interest in people viewing it as a country of laws rather than a country of whatever you get off with is fair game.