Three former Netflix employees, along with two associates, have been charged by the Securities Exchange Commission with using insider information on company subscriber growth to illegally gain $3 million on the Nasdaq.
According to an SEC statement released Wednesday, former Netflix engineer 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 SEC alleges that from 2016-17, Sung Mo Jun provided his brother Joon Mo Jun and friend Junwoo Chon with subscriber data that they illegally used to trade stock prior to Netflix quarterly earnings reports.
After he left Netflix in 2017, the SEC said Joon Mo Jun continued to receive internal subscriber data from Ayden Lee, described by the SEC as “another Netflix insider” as well as former Netflix colleague Jae Hyeon Bae.
The group used encrypted communications to carry on their scheme, the SEC said, but the agency's Market Abuse Unit eventually noticed the quintet's "improbably successful trading over time."
"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," said Erin E. Schneider, director of the SEC's San Francisco regional office, in a statement. "The charges announced today hold each of the participants accountable for their roles in the scheme."
Netflix hasn't publicly commented in the charges its former employees face. However, in his 2020 book No Rules Rules, company co-founder and co-CEO Reed Hastings predicted that Netflix's liberal sharing of sensitive company data would eventually cause a problem. He also suggested that such an inevitable event wouldn't change Netflix policy.
“We are perhaps the only public company that shares financial results internally in the weeks before the quarter is closed,” Hastings wrote. (Hat tip to TheVerge for first surfacing this quote.) “The financial world sees this as reckless. But the information has never been leaked. When it does one day leak (I imagine it will), we won’t overreact. We’ll just deal with that one case and continue with transparency.”
