I can't tell how much of it is random people projecting their cynicism onto the business world, or if it's people who have been part of bribery/kickback schemes themselves trying to normalize the behavior online.
Either way, cases like this should make it clear that the behavior is not a good idea.
Every vendor has marketing budget and a decent portion of it goes to keeping their point people at clients happy. You can call it kick back or whatever, it’s a matter of semantics.
So yes it is normal. And no it’s neither cynical and nor have I been involved in. But I’ve seen it happen around me. So I know it’s a routine thing.
Flying people to an AWS conference seems entirely different than funneling money into a single person's bank account.
Yes, I know these conferences have a party-like atmosphere, but it's not done surreptitiously and it's not siphoning money out of the deal into someone's pockets.
Kail received money and stock directly, not as part of a business or sales exchange. Being flown to a conference where you'll be told the merits of your potential purchase is obviously very different.
Even if Kail had innocently owned stock in a company being evaluated it likely would have been a conflict of interest and they should have stepped away from the evaluation. This happens all the time. As a CEO I can tell you I've had people stop a call partway through because they realize they're conflicted out of the discussion and I'll have to talk to a neutral party.
Companies pick up at least some expenses for customers, partners, journalists, analysts, etc. to attend business events all the time. And everyone involved is very clear about the difference between that and handing them a stack of bills under the table.
(And speaking for myself, I can think of a lot of places that I'd rather be than Las Vegas for re:Invent.)
At none of them was there any kind quid pro quo even hinted at. My employer knew about and approved all trips beforehand.
This is way different than what happened here. Direct payments to an employee for award of work without knowledge of their employer.
This guy was soliciting cash and stocks! A crummy sponsored trip to a conference would have been arranged through the employer, and is not the same thing.
The actions in question occurred almost 10 years ago, how many people lost commissions and bonuses and promotions and jobs and relationships by trying to play fair?
acknowledging this isn’t being an apologist for it or condoning it
even the DOJ indictment only acknowledges Netflix shareholders being deprived of tiny tiny amounts of profits, not everyone at all the other companies in the wake over the last decade, which is kind of a slap in the face and like a joke that public servants actually bothered, using that rationale.
so with that reality the incentive is still there to kickback and relax
This was pay to play and the play was not delivered. Hence the blowback from upset "victims" coming after their money.
Kickbacks are almost never posecuted because both sidea get what they want.
Same played out with the college entrance scandal. "Bribery is great and we love it a bunch—unless you do it wrong because you're not rich enough to do it right, then it's a big ol' no-no" is the message a great many received from that one.
I think the extreme version of this is me taking something that is routine or normal for me individually and assuming all other humans must do it. Or taking something that my spouse, boss, or parent did and assume all spouses, bosses, or parents must do it. Not necessarily.
Some times (very rarely a person got caught, no criminal charges) some timed it was known and nobody cared.
Some of my friend chose not to become managers because they did not want to get involved in the scheme.
There are tons of stories of big pharma sending doctors to lavish resorts in the guise of a "conference". Ever heard of payola? The music business has been based on bribes. Why would you think of the film business being different? Hell, the states are involved just as much with tax incentives to entice productions to use their state/cities as location for that production.
You're being quite cynical trying to wrap any person with knowledge of these payout schemes as being involved/complicit.
I think most people don't understand the difference between an agreed to agency fee/reseller margin deal, a direct incentive program, and someone just taking money, on the side. Direct Incentives (also call spiffs) are where a supplier pays a bonus directly to the person who sold the deal. These are always agreed to between the companies and reported. Without permission of the employer, they could be very illegal or a major violation of your employment contract.
Or people who actually know about those things, having worked in/with/studied the various industries, without having "been part of bribery/kickback schemes themselves", and have seen them to be fairly widespread - that's a missing third option.
I added this, because the above comment is still that of the proverbial starry-eyed kid arriving with the bus to L.A. from Nebraska, and paints a false dichotomy that ends up with the same conclusion ("this can't possibly be widespread"):
(a) it's either cynical people (so this isn't widespread, it's just their cynicism that thinks so)
(b) or it's crooks looking to normalize their behavior (so this isn't widespread, it's just isolated "bad-apple" cases justyfing themselves)
Even merely studying different industries, you'll find such scandals (and worse) in some of the biggest companies on Earth, with upper management knowledge and encourangement, collaboration with local governments, cover-up and diplomatic protection from the company's own government, and so on.
Just an example, from one of the biggest companies in the world, with tons of different executives and branches involved, and with different corruption cases all around the world:
https://www.sec.gov/news/press/2011/2011-263.htm
https://www.sandiegouniontribune.com/sdut-lt-latam-siemens-b...
https://www.reuters.com/article/norway-siemens-idUSL13418322...
https://www.nytimes.com/2008/12/21/business/worldbusiness/21...
https://en.wikipedia.org/wiki/Siemens_Greek_bribery_scandal
How about IBM:
https://medium.com/worm-capital/the-ibm-hall-of-shame-a-semi...
https://www.wsj.com/articles/u-s-drops-multi-country-bribery...
https://fortune.com/2017/07/27/ibm-poland-investigation/
https://www.bbc.com/news/business-12793255
Microsoft?
https://www.zdnet.com/article/microsoft-to-pay-25m-to-doj-an...
https://www.reuters.com/article/us-microsoft-settlement-idUS...
GE and more:
https://www.cnbc.com/2019/05/17/fbi-targets-johnson-johnson-...
https://www.ojp.gov/ncjrs/virtual-library/abstracts/whistleb...
https://www.industryweek.com/the-economy/regulations/article...
A general study focusing on past:
"As the 2000s decade progressed, a different breed of corporate scandals began to surface. For example, companies such as ABB Limited, Daimler Chrysler, El Paso Corporation, General Electric, Halliburton, Lee Dynamics, Lucent Technologies, and Siemens AG were found guilty of violating U.S. law and consequently, also rattled shareholders’ trust (Cascini & DelFavero, 2008, p.27). The named businesses were found guilty of committing bribery (...)"
https://digitalcommons.sacredheart.edu/cgi/viewcontent.cgi?a...
And we haven't even got into weapons, aviation, construction, and medicine industry bribes (industries which are to bribes what Xerox PARC was for UI innovations!)
I think the problem lands somewhere between “widespread corruption” and “never.”
Salespeople can hit their quotas without kickbacks.
What I do see from time to time is this happening “fully disclosed”’at the very senior level. A CEO of a major database company convinces the board to buy a firm that he has an interest in. A CEO “allows” a company to rent out his property for corporate housing. These are fully disclosed, and therefore considered acceptable.
It may seem nitpicky and yet I think the context and statistics matter—without it, I think we can fall into very binary discussions of people being corrupt or clean, bad or good.
Is this on HN? Because I rarely sees it. Most people working in Tech and specifically software development are so abstracted from these type of things they think they are extremely rare.
It is still a common thing though. At least it happens much more often than most people thought. And it is not cynicism but personal experience.
Try talking to a retired government worker for juicy stories some time (there are three generations of tech workers in my family, and all of us have done government work or contracting since the 1960s).
This is why government workers and contractors have to take so much anti-corruption training (I’ve never been subject to this in any purely private sector jobs).
This was hundreds of thousands. Those are billions.
What's the difference? The person who got caught was a small fry and couldn't pull the strings.
This is the sort of cynical thing people say because other people say it. Spiro Agnew did it, sure. That was a while ago. What are your other examples? Since virtually every member does this, you should have hundreds. And remember you need a roughly balanced count of Republicans and Democrats. Obama was in office for 8 years. That should be quite a pile.
Pure cynicism is an argument against rules and accountability generally.
It "seems off" because that obviously isn't what happened.
> Jury Earlier Returned 28 Guilty Verdicts Convicting Michael Kail of Fraud and Money Laundering for Pay-To-Play Payments from Tech Startups Seeking Netflix Contracts
These are crimes, not mere violations of corporate policy.
It’s always a game of cat and mouse. Legalizing small time bribery where it can be done out in the open would probably be far more effective then advocating for things like increased workplace surveillance.
Thinking commerce can happen without corruption or kickbacks is just naive.
https://ourworldindata.org/ethnographic-and-archaeological-e...
They're what you'd call "good guys".
They wouldn't be caught dead in that crazy kickback scheme that was described.
I know this is a small sample set, but what I've come away with is that rich people are like you and me, except they happen to be rich.
I guess we'll just go back to big wads of cash in an envelope instead.
Uh so wait are you saying that because the elected official isn't held responsible that we should then lower the bar to permit all bribery? That doesn't make any sense.
Is there a typo in there, is that just a weird legal term, or is it just me that has a hard time processing what that means?
>Mr. Kail chose which IT contracts were awarded by Netflix according to how he was able to bribe those companies to provide him with financial compensation
Kickbacks aren't the fundamental issue here. If this was a single-employee startup with no other investors or shareholders, this would be perfectly legal. Or if Netflix, Inc. had a policy that authorized individual executives to personally receive cash and stock from vendors as perks, then this would have been perfectly legal. However, as the article says, Netflix had an internal policy that he blatantly violated:
> Netflix policies prohibited conflicts of interest by its employees by its Code of Ethics and its “Culture Deck,” which required the disclosure of actual or apparent conflicts of interest and the reporting of gifts from entities seeking to sell products or services to the company.
They're not illegal because they're unfair or immoral, they're illegal because the administrator is selling the spot that the college owns; it's not his/her spot to sell.
If the company wanted to be used by Netflix in exchange for equity, then they could make a deal with Netflix itself. This executive was essentially selling the rights to contracts (akin to spots) that he didn't have the right to sell.
- VistaraIT, LLC
- Platfora, Inc.
- Sumo Logic, Inc
- ElasticBox, Inc
- Numerify, Inc.
- Docurated, Inc
- Maginatics, Inc.
Is what they did illegal too? Presumably with zero chance of being charged. I haven't fully groked the limits of 'fraud' and 'money laundering' here in the US. These typically feel like they should be civil breach of fiduciary duty type cases.
Evidence at trial showed that several more companies paid Kail. Neither Netenrich, Vistara, nor any of the other companies were charged with criminal conduct. Only Kail was charged with devising the criminal scheme that defrauded Netflix.
That seems like the proper litmus test for bribery by vendors, as distinct from "shakedown" / "pay to play" i.e. extortion from vendors.
Wonder if really shrewd extortionists try to make victims complicit, by sending them inside info never asked for?
What Mike did was indeed unethical and fraudulent. It's also extremely foolish and shows poor judgment on his part -- his role at Netflix was to lead the organization to identify and implement the best solutions for the company and its customers. Instead he saw the opportunity for short-term personal gain at the company's expense, and by doing so he jeopardized his lifetime earnings potential that would have been many times greater. I hope this sends a message to anyone else in his position that there can be consequences.
I've been responsible for tens to hundreds of millions in annual expenditure, and to even have the appearance of vendor favoritism (let alone kickbacks, bribes, payoffs) is anathema to me. I have vendors that I like to work with because they do good work and they help me to make things happen, but even my favorite vendor is evaluated and earns the business on the merits every single time.
I have declined seemingly innocent gifts from vendors (and notified my management). I always turn down things like sports tickets and paid trips. I do let vendors pay for the occasional lunch, but only up to a point that I feel comfortable. Maintaining my independence is absolutely key to my role and my career.
I've also worked at places where even a paid for lunch is not acceptable. That won't influence my decision-making one iota, but if those are the rules then I follow them.
Not everyone does that, but I don't know anyone in the industry who thinks Mike's behavior is OK. Anyone working for me who made unjustifiable decisions with vendor agreements would make me re-evaluate their position -- and if I found a pattern along the lines of Mike's behavior, they would be dismissed and sued just like him.
It isn't always feasible, but when I'm faced with a decision where my judgment may be (or at least appear) compromised, I like to assemble the details and let my team or my management make the call. Nothing in life happens 100% without bias, but I think this helps to build trust in a similar way to your disclosing of financial ties.
The industry is quite small in a lot of ways, and reputation is everything. If people sense that you aren't trustworthy, you may still be able to find work -- but everything will get harder.
I'm glad to hear that you see value in professional trust as well and take the steps to earn it and keep it.
Thanks for sharing it.
Readers of HN should take note - especially young up-and-comers.
Here's a nice article on this topic: https://www.bloomberg.com/opinion/articles/2019-03-13/you-ha...
https://www.justice.gov/usao-ndca/pr/former-netflix-inc-vp-c...
If you get caught stealing $700,000,000 the criminal justice system has a problem.
https://www.cnn.com/2021/04/14/business/bernie-madoff-dead/i...
if you owe them 500,000,000,000,000,000 you got a value overflow error
https://www.justice.gov/opa/pr/electronic-health-records-ven...
If you read through the settlement I linked ("The settlement also resolves allegations that ECW paid kickbacks to certain customers in exchange for promoting its product.") and other documentation regarding that case you can find details of several situations. I am singling out ECW there because that settlement exists. You would have to be pretty naive to think they were the only vendor engaged in that type of behavior and that the recipients of kick backs were only receiving kick backs from them alone.
When I was locked up, I was in Max with mostly murderers. I got tricked out of a $10 phone card in my first week, and the guy said he'd protect me as a thank you. After I realized I'd been dumb I never made that mistake again. I found just being polite, but firm, was enough.
He'll be fine. He'll probably never get into a single fight. He'll be asked for commissary. He'll share some of his commissary, but everyone does that in prison anyway, especially with the guys that have nothing.
What would you change about the prison system? Do you think mental health treatment would help reduce the prison population from repeat offenders?
Shouldn't this be a civil case between Netflix and this guy? Why is criminal justice system even involved in this? It looks like very bad way to spend tax payers money.
Instead now every taxpayer pays for salaries of prosecutors and judges and whoever else is necessary to help one corporation exact a little vengeance.
Is it legal to take bribes if you do it in a way that doesn't create wire fraud? Was the crime taking kickbacks or was the crime being paid in a certain way (i.e. the LLC he created)?
I know anecdotally a lot of US based Indian Outsourcing companies, TCS, Infosys, Mahindra, HCL bribe the mid-senior IT executives by buying them offshore properties under LLCs. If you look at Avis, Disney and other corps, the top level IT execs are bribed to the gills by these companies.
> Two days before Unix Mercenary was registered with the California Secretary of State, Kail signed a Sales Representative Agreement to receive cash payments from Netenrich, Inc., amounting to 12% of any billings ...
This is not to excuse the criminality, but rather to suggest an unhappy likelihood that the great bulk of graft flows by more sophisticated arrangements.
Understand that ANY product has a "side" price tag, paid by granting options or "payment for expenses" to the senior individual. Another way to look at that. Ask ANY member of your board of advisors to disclose ANY conflict of interest.
If StartUp sells product/services/SaaS to BigCo. then BigCo. "advisor" should disclose ANY payment, direct or indirect, travel or non-travel, and ANY stock options.
This is what had to be done with the large drug companies, forcing them to disclose payments to providers/medical doctors who had the authority to buy drugs. Full disclosure + penalties for lack of disclosure ---> that was the end for the drug sales rep who were doling "educational conference tickets, all expenses paid for you and your spouse, ALL expenses paid, and of course compensation for your time". Of course said conference had to happen in Tahiti, San Francisco, Seychelles, etc...
I've also been in the industry long enough to get my own sense of what is / what is not reasonable.
The first thing, Netflix wise, is to understand their culture deck at the time. One of the main things was "Act in Netflix's best interest". That basically described their philosophy of how employees should act.
So, when signing a contract, where you get a 10% kickback, (eg the company pays $200/hour and you get $20 as a commission, its better to have the company pay $180.)
Also, signing contracts that he was enriched by - stock, kickbacks etc. (he received what is now worth: $862,500 of sumologic, and $2,167,700 of netskope - trial document #276
He also signed contracts that were never deployed, had a long support lifetime, or didnt meet the companies needs - eg: Numerify, and docurated - trial document # 288
In some cases, I personally experienced us having to use tools that Mike had signed for that were not right for the job. Eg: Sumologic at the time was a horrendous product. It certainly was not a realtime logging system. Realtime was up to 15 minutes delayed. If you wanted realtime, it was all about syslog. I brought this up, and was told that we were using the product because of Mike, even though it clearly did not help our problems. Grep on the unix server was considerably faster and more up to date, (but it wouldnt have got Mike $2M of stock).
Mike also had me meet with him and various vendors who were pitching some fly-by-night ideas. In a normal world, I'd say they were very early startup ideas that weren't a match for our needs. Now, I'm wondering if these were meetings where Mike was looking to get an "advisory" angle.
In summary, I've been to coffee, dinners, very nice meals etc. with vendors. I've had them invite me places for meetings, and I've gone with my companies permission and understanding. I've had non-compensated advisory positions. The difference though, is my company was aware of it, and I did not receive stock or engineer contracts such that I received kickbacks. Thats where the line was, and thats why he's going to jail.
Maybe there are no wads of cash changing hands, but I've personally seen contracts being earned less due to the feature set, but more because the startup got introduced to some C level and them applying downward pressure to choose that startup during the vetting process.
It's kinda noticeable when you're on a call with a big company's tech team and they sound defeated when talking about the success criteria and stuff
A week later he had another CIO job. I think he was fired from that one too.
No idea if he was ever put on trial, probably the case was too embarrassing to pursue.
It is important to me that I am able to make the best possible decision at any moment. I don't want someone else veing in a position where I can ve forced to do something I don't want to do.
Do said competitors now have grounds for a lawsuit against Netflix itself?
i wonder how much the name choice had to do with the convinction
he could have definitely chosen something more tasteful lol