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Former California Netflix executive found guilty of taking bribes from startups

Josue Torres
Photo by Thibault Penin.Unsplash

On Friday, a federal jury found Michael Kail, Netflix’s former vice president of IT operations, guilty of accepting bribes from tech startups seeking to do business with the entertainment company.

After a two-and-a-half-week trial at the San Francisco-based U.S. District Court for the Northern District of California, Kail was found guilty on 28 of 29 charges of wire fraud, mail fraud and money laundering, the U.S. Department of Justice said in a statement Friday.

The 49-year-old Los Gatos resident was charged in May 2018 with taking over $500,000 in kickbacks between 2012 and 2014 in return for approving millions of dollars in contracts to tech firms looking to do business with Netflix.

The verdict was reached following four days of deliberation. The trial was supposed to begin in March, but it was postponed due to the coronavirus pandemic.

Judge Beth L. Freeman is scheduled to convict Kail in around three months, though she stays free on parole. Kail carries a potential penalty of 20 years in prison and a $250,000 fine on each count of wire or postal theft, as well as 10 years in prison and a $250,000 fine for each count of money laundering.

Kail entered a not-guilty plea. Julia Mezhinsky, his solicitor, did not respond to a request for clarification.

“Bribery undermines fair competition and innovation in any business arena, and particularly Silicon Valley’s highly competitive environment of cutting-edge innovation,” acting U.S. Attorney Stephanie M. Hinds said in a statement Friday. “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.”

Jonathan Bing, a spokesperson for Netflix, refused to speak on the matter. Netflix filed a lawsuit against Kail in 2014, and the matter was resolved out of court.

The probe was conducted by the FBI and the Internal Revenue Service.

Kail was employed by Netflix in 2011 to handle its IT activities. He retained the role until July 2014, when he was in charge of accepting contracts for the procurement of IT goods and services from smaller vendors.

The government submitted allegations that Kail took payments from nine software firms looking to do business with Netflix, agreeing to take up to 15% of the billed sums for himself. According to the Department of Justice, Kail obtained over $500,000 in cash and stock options from these firms, which he used to pay personal expenditures and purchase a house in Los Gatos.

Prosecutors claimed Kail met with employees of technology firm Platfora Inc. in the summer of 2013 and arranged for Netflix engineers to evaluate the data analysis software platform. According to the Justice Department, on July 13, 2013, Kail met with Platfora’s CEO for drinks and later thanked him in an email, adding, “I look forward to helping you in both a Netflix and Advisory capacity.”

Kail signed a contract with Platfora two days later that granted him the opportunity to buy up to 75,000 options, or around 0.25 percent of the stock. According to federal prosecutors, he then supplied Platfora with Netflix’s internal details regarding a competitor’s contract offer price.

According to the Justice Department, in September 2013, while working as a paid adviser to Platfora, Kail negotiated a $250,000-a-year deal with the San Mateo corporation and encouraged his Netflix staff to find a use for the commodity, ignoring their protests and desire for a rival product that Netflix was already paying for.

Netflix CEO Reed Hastings interfered, and Kail denied collaborating with Platfora, according to investigators. The next week, Kail resigned from his advisory role at Platfora.

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