A ring of three Netflix Inc (NASDAQ:NFLX) employees and their friend have been charged with insider trading after their ability to correctly trade the shares’ movements at each quarterly earnings statement earned them US$3mln profit but was identified as “improbably successful” by US market regulators.
The SEC said the trio of Netflix software engineers, led by Sung Mo ‘Jay’ Jun, used confidential information on the video streaming giant’s subscriber growth, which is the key metric the market looks at each quarter.
While employed at Netflix in 2016 and 2017, Sung Mo Jun allegedly tipped information on subscriber growth to his brother and his close friend, who both used the information to buy or sell the company’s stock in advance of quarterly earnings announcements.
After he left the company, the SEC said Sung Mo Jun obtained confidential subscriber growth information from 2017 to 2019 from a former Netflix colleague, Ayden Lee, who was still at the company, then from another engineer Jae Hyeon Bae in 2019.
Messages were sent using encrypted messaging application, such as Whatsapp, which the SEC claimed was an attempt to evade detection.
But because their trading record was so “improbably successful” over time it was was identified by the SEC market abuse unit using data analysis tools, the regulator said.
“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.
Joseph Sansone, chief of the SEC’s market abuse unit, added: “The defendants allegedly tried to evade detection by using encrypted messaging applications and paying cash kickbacks.
“This case reflects our continued use of sophisticated analytical tools to detect, unravel and halt pernicious insider trading schemes that involve multiple tippers, traders, and market events.”