SEC Charges 3 Former Netflix Software Engineers With Insider Trading

Three Netflix Inc NFLX engineers and two others were charged by the U.S. Securities and Exchange Commission with insider trading on Wednesday.

What Happened: The SEC said in a statement that the three Netflix engineers and two close associates generated over $3 million in total profits by trading on confidential information related to subscriber growth.

The SEC named Sung Mo “Jay” Jun as being the “center of a long-running scheme that involved illegally trading on non-public information related to the growth of Netflix’s subscriber base — a key component of the subscription video-on-demand company’s earnings report.

Jun, while employed at Netflix in 2016 and 2017, tipped the information to his brother Joon Mo Jun and his close friend Junwoo Chon, who used the information to trade in advance of multiple earnings announcements, as per the SEC.

After Sung Mo Jun left Netflix in 2017, he obtained confidential subscriber growth data from another insider Ayden Lee. 

Sung Mo Jun traded himself and tipped Joon Mo Jun and Chon ahead of Netflix earnings from 2017 to 2019.

SEC also alleged that Jae Hyeon Bae, a former colleague of Sung Mo Jun, tipped Joon Mo Jun ahead of the July 2019 earnings announcement of the SVOD company.

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Why It Matters: SEC said the insider trading ring was busted after its Market Abuse Unit’s Analysis and Detection Center used data analysis tools to identify the improbably successful trading over time.

“The defendants allegedly tried to evade detection by using encrypted messaging applications and paying cash kickbacks,” alleged Joseph Sansone, Chief of the Unit.

In parallel, the U.S. Attorney’s Office for the Western District of Washington also filed criminal information against Sung Mo Jun, Joon Mo Jun, Chon, and Lee, the SEC said.

Netflix’s second-quarter earnings came in at $7.34 billion, up 19% year-over-year, and slightly higher than Street estimates of $7.32 billion.

Third-quarter revenue is forecast at $7.48 billion, a growth of 16.2% year-over-year. The company sees the third quarter ending with 212.68 million subscribers.

See also: How to Buy Netflix Stock