On Friday, April 30, former Netflix VP Michael Kail was found guilty on 28 counts of wire fraud, three counts of mail fraud, and seven counts of money laundering. He was convicted of receiving stock options, bribes, and kickbacks from tech companies in return for approving their contracts.
A kickback is any illegal payment received as compensation for preferential treatment. Kail apparently created an LLC called Unix Mercenary to receive the bribes, which he then used for personal expenses. He could be facing up to 20 years in prison, as well as fines. He’ll be sentenced in about 3 months but is currently free on bond.
What was the actual crime?
A kickback is considered to be a misappropriation of funds. In this case Kail also created an environment of unfair competition by creating a pay-to-play environment that put some tech start-ups at a disadvantage while elevating the ones who were willing to reward him personally. In addition, abusing his position as VP allowed him to deprive Netflix of money and resources. He essentially “stole the opportunity to work with an industry pioneer from honest, hardworking Silicon Valley companies.”
He’s also accused of breaching his fiduciary duties to Netflix and its shareholders. In many cases the contracts he awarded did not benefit the company and in some cases actively cost the company money.
On a press release issued by the Justice Department, Michael Daniels, Acting Special Agent in Charge of IRS Criminal Investigations said: “High ranking corporate officials hold positions of trust not only in their companies, but also in the eyes of the public. That trust is broken when such officials abuse their power and commit crimes to unjustly enrich themselves.”
The specific statutes violated were 18 U.S.C. §§ 1341 (mail fraud), 1343 (wire fraud), 1346 (honest services fraud), and 1957 (money laundering).
The main crime was Honest Services Fraud: “A scheme or artifice to deprive another of the intangible right of honest services.” Most fiduciary relationships demand that the holders of certain positions function openly and faithfully while performing certain services. In 2010 the Supreme Court ruled in Skilling vs. United States that this statute can be applied to bribery and kickback schemes.
The wire fraud and mail fraud charges were applied to the various methods Kael used to enact the scheme. Creating his LLC allowed the government to tack on the money laundering charge.
If you are in charge of awarding contracts on behalf of your company you should be careful avoid accepting gifts, stock options, or cash from any company you award contracts to.
Accepting bribes is a crime even in the private sector.
Instead, you should at all times award your contracts with an eye to purchasing the best products and services for your company.
Have you been accused of honest services fraud? Our law firm can help. We’ve helped dozens of individuals who were accused of white collar crime navigate their cases, and we can help you, too.