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Netflix Sues Former Executive For Taking 'Kickbacks'

Netflix has sued the company's former president of IT operations Mike Kail, stating that Kail took kickbacks from vendors while employed at the company. According to the complaint (pdf, first spotted by Re/Code) Kail steered Netflix business to two IT companies -- VistaraIT Inc. and NetEnrich Inc, in exchange for a 12 to 15% monthly "referral fee" paid to his personal consulting firm.

Netflix paid those two companies a total of $3.7 million from 2012 until Mr. Kail’s departure in August 2014, with Netflix only discovering damning e-mails after Kail's departure to a new job as the CIO of Yahoo. Vistara and NetEnrich aren't commenting, and Netflix believes that Kail may have taken money from additional companies.

"Netflix’s investigation also revealed that, on information and belief, Kail may have received other benefits from companies that contracted with Netflix, including but not limited to, stock, gift certificates, and cash," Netflix said in the complaint.

Netflix by Karl Bode

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W8ASA
Biet Noi Tieng Viet Khong?
join:2000-07-31
Dayton, OH

W8ASA

Member

Nice proofreading, Rachael

I cannot for the life of me imagine an attorney signing a complaint on which her own name was misspelled right by her signature! LOL!
kaila
join:2000-10-11
Lincolnshire, IL

kaila

Member

Re: Nice proofreading, Rachael

Could just be an OCR goof....

W8ASA
Biet Noi Tieng Viet Khong?
join:2000-07-31
Dayton, OH

W8ASA

Member

Re: Nice proofreading, Rachael

This wasn't an OCR copy.
jjeffeory
jjeffeory
join:2002-12-04
Bloomington, IN

jjeffeory

Member

Re: Nice proofreading, Rachael

Somebody needs glasses. Good catch!
Mr Matt
join:2008-01-29
Eustis, FL

Mr Matt

Member

Why aren't Federal Lawmakers held to the same standards?

Federal lawmakers are constantly accepting gratuities from special interests like lobbyists and campaign contributors. That needs to be stopped first.

Sounds like Netflix is retaliating to me. Did the consultant do a good job? That should be determined first.

tshirt
Premium Member
join:2004-07-11
Snohomish, WA

tshirt

Premium Member

Re: Why aren't Federal Lawmakers held to the same standards?

said by Mr Matt:

Did the consultant do a good job?

You remember all those "buffering/loading" complaints?
Do you think IT services selected on merit, with an extra 15% in the budget might have avoided that?
Probitas
join:2014-06-05
Canada

Probitas

Member

Re: Why aren't Federal Lawmakers held to the same standards?

Apples and Oranges dude. And part of that problem was fully controlled by the ISP.

SysOp
join:2001-04-18
Atlanta, GA

SysOp to Mr Matt

Member

to Mr Matt
No.

It's an employment contract violation.

Netflix is not a branch of the government and has nothing to do with stopping Federal lawmakers from accepting gratuities.

battleop
join:2005-09-28
00000

battleop to Mr Matt

Member

to Mr Matt
What does this have to do with Federal Lawmakers? I can't think of any laws that were broken here.
Skippy25
join:2000-09-13
Hazelwood, MO

Skippy25

Member

Re: Why aren't Federal Lawmakers held to the same standards?

Laws may not have been broken which is why I do not see a criminal case here.

What I do see is a civil case as more than likely this individual violated the terms of his employment and profited from it at the expense of his employer.

battleop
join:2005-09-28
00000

battleop

Member

Re: Why aren't Federal Lawmakers held to the same standards?

I guess it depends on his terms of employment and any company polices he had agreed to. I'm a little surprised that a company of that size didn't have some sort of checks and balances in place to prevent this type of problem.
nonymous (banned)
join:2003-09-08
Glendale, AZ

nonymous (banned)

Member

Re: Why aren't Federal Lawmakers held to the same standards?

Higher up the food chain easier to cover your tracks. Obviously got caught though. Any new employees may not hire him now or fire depending on hiring contract. Unless new employees like this behavior.
Could be criminal as round about theft etc. Money ended up with him that was not supposed to. Not as direct as a Walmart employee stealing from register but something should cover it if they want to press criminal charges. But probably go civil to get money back.

battleop
join:2005-09-28
00000

battleop

Member

Re: Why aren't Federal Lawmakers held to the same standards?

HUH? That reads like a text message from a drunk friend.
AmericanMan
Premium Member
join:2013-12-28
united state

AmericanMan to Mr Matt

Premium Member

to Mr Matt
said by Mr Matt:

Did the consultant do a good job?

Probably not, or else Netflix might be looking to get this vendor back for more software instead of suing

KrK
Heavy Artillery For The Little Guy
Premium Member
join:2000-01-17
Tulsa, OK
Netgear WNDR3700v2
Zoom 5341J

KrK to Mr Matt

Premium Member

to Mr Matt
said by Mr Matt:

Sounds like Netflix is retaliating to me. Did the consultant do a good job? That should be determined first.

The consultant is Kail himself. He used his IT position at Netflix to award Netflix business contracts to companies that paid HIM money..... IE, fraud, kickbacks.

They are right to go after him. They should also consider going after the contractors too if evidence suggests Netflix was being overcharged.
dfxmatt
join:2007-08-21
Crystal Lake, IL

dfxmatt to Mr Matt

Member

to Mr Matt
What it sounds like to you is not what facts sound like, so no.

This isn't surprising, but it's more a question of what details come forward from here.
FactChecker
Premium Member
join:2008-06-03

1 recommendation

FactChecker

Premium Member

What about the vendors?

Netflix has every right to sue this individual for this blatant alledged ethics violation. On top of this there should also be steps taken with the companies that agreed to these kickbacks. A responsible company would not do this and at least escalate the issue at the time it happened.

Question is, what does his current employer do?
AmericanMan
Premium Member
join:2013-12-28
united state

AmericanMan

Premium Member

Re: What about the vendors?

The vendor might be gone by now. Dissolved and reincorporated a dozen times over, so that no matter how far back you look you wouldn't find a shadow of the original corporation...

FireHim
@50.182.138.x

FireHim to FactChecker

Anon

to FactChecker
said by FactChecker:

Netflix has every right to sue this individual for this blatant alledged ethics violation. On top of this there should also be steps taken with the companies that agreed to these kickbacks. A responsible company would not do this and at least escalate the issue at the time it happened.

Question is, what does his current employer do?

And Yahoo should quickly fire this loser before he steals from them.

Jim Kirk
Premium Member
join:2005-12-09
49985

Jim Kirk

Premium Member

Re: What about the vendors?

Capital punishment

Jim Kirk
@95.154.230.x

Jim Kirk

Anon

Re: What about the vendors?

said by Jim Kirk:

Capital punishment

Jim Kirk I presume. Tired of the Star Trek persona?

KrK
Heavy Artillery For The Little Guy
Premium Member
join:2000-01-17
Tulsa, OK

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Yahoo should terminate his employment for gross misconduct. Any options he had like stock or retirement perks for a normal parting of the ways should be forfeit.
ConstantineM
join:2011-09-02
San Jose, CA

ConstantineM to FactChecker

Member

to FactChecker
said by FactChecker:

Netflix has every right to sue this individual for this blatant alledged ethics violation. On top of this there should also be steps taken with the companies that agreed to these kickbacks. A responsible company would not do this and at least escalate the issue at the time it happened.

Would you kindly point out which responsible company would rather lose a contract than have to share 15% of it for referrals?

Certainly not one whose mission it is to produce the income for its shareholders!

Did you know that in Texas there is a whole bunch of free apartment locator services, due to the fact that when one signs a 1-year contract at 1k$/mo for an apartment, the apartment locator that made the referral easily gets 1k$ in commission, simply for spamming the craigslist with spammy ads, and offering you a 50$ gift card if you use their services. Not saying whether it's good or bad -- it's just a fact of life.

rit56
join:2000-12-01
New York, NY

rit56

Member

Yahoo

While everyone here debates on the morality of his act, whether it was stealing or not (it was in my opinion) you're also missing the other big big issue for this guy. He is forever tainted as dishonest. You don't work for a corporation and make side deals to benefit yourself. Theoretically you are being paid a lot of money for you job among other things to make the company money and not to steal.

Oh I got side tracked. The other big problem he has now is you can bet his current employer is examining EVERY bit of business he signed off on. The next thing we may read about is his resignation from Yahoo. Greed is a tricky friend. Once you steal, and get away with it as he did until now you don't stop and it usually escalates. I guarantee you he is stealing from Yahoo right now and legal at Yahoo is probably having meetings as we speak, going over all his contracts. If they aren't then they're idiots and deserve to get screwed.
Probitas
join:2014-06-05
Canada

Probitas

Member

This is not the only guy who ever got caught with hands in the jar

Lots of retards think they can take kickbacks and gifts for using their position as purchaser for a company to benefit another company. I've seen a guy get fired for it while working at a factory. It isn't solely a white collar issue.

RootWyrm
join:2011-05-09

RootWyrm

Member

You're an idiot if you don't think this is the norm.

I've been in IT for decades.

There isn't a single damn deal that gets signed without significant kickbacks. Period. And everyone just smiles, nods, and carries on.

There's a local executive who got a new BMW. Paid for in full by a certain three letter storage vendor he was doing business with. That's in addition to outings and the usual swag. In return, he didn't give them the boot, even though their gear was broken from day one. He's still in the position of course. And they spent a LOT more than Netflix on a single deal. A LOT more.

There is not a single deal I have been involved in where I have not seen substantial kickbacks offered in various guises. Direct, indirect, services, goodies, you name it and I have seen it. And I'm not talking coffee mugs and embroidered polos. Everybody winks, nods, and the vendor chalks it up as cost of doing business.

Understand I'm not saying there's anything wrong with swag. Most vendors know if they're dealing with me to bring a t-shirt or coffee mug for my collection. (And really, they're coming out ahead with the free advertising.) Same with flying us out for executive briefings. It's a legitimate expense and they're right to put their best foot forward. But deals do NOT get done without kickbacks on top of all of that. Not everyone accepts, but they are ALWAYS offered.

Secondly, it's not theft. Period. End of story. Unless they can prove Mike was stealing DIRECTLY from Netflix, it's breach of contract. Which is EXACTLY what the suit alleges. Breach of contract, NOT THEFT. They're claiming he favored these companies because they paid him more money, and that Netflix paid more for the services than they would have normally. To prevail, they'll likely have to prove that these companies charged Netflix more than normal (which will be extremely tough for with a service company) and that these companies didn't simply write off the kickbacks as the cost of doing business. Which is more likely the case.
scross
join:2002-09-13
USA

scross

Member

Re: You're an idiot if you don't think this is the norm.

Well, if (wink, wink, nudge, nudge) "everybody does it", then I wonder what led Netflix to go after this particular guy at this particular time? They must know that an investigation into this might well uncover all kinds of potentially unpleasant things internally, and expose all kinds of people to scrutiny, no doubt making it harder to get things done if greasing the wheels is common practice and is necessary to do so.

Maybe the guy was just too blatant and careless about it, or the cumulative amounts involved were just too high. I've seen similar situations myself, where the only real way to explain the ultimate decisions being made were if some kind of kickbacks or other consideration were involved. But these deals were no doubt executed in ways which left no paper trail, which isn't the case here.
mdurkin
join:1999-08-11
San Bruno, CA

mdurkin to RootWyrm

Member

to RootWyrm
What is alleged by Netflix is pretty clearly criminal under California law, I direct you to the Commercial Bribery statute, Penal code section 641.3.

"641.3. (a) Any employee who solicits, accepts, or agrees to accept money or any thing of value from a person other than his or her employer, other than in trust for the employer, corruptly and without the knowledge or consent of the employer, in return for using or agreeing to use his or her position for the benefit of that other person, and any person who offers or gives an employee money or any thing of value under those circumstances, is guilty of commercial bribery."

It only applies for > $250, but once you're over $1000, it's a felony with up to 3 years in prison. Potentially both Mike Kail and the people at the vendor participating could be charged criminally under this statute.
chgo_man99
join:2010-01-01
Sunnyvale, CA

chgo_man99 to RootWyrm

Member

to RootWyrm
yawn!, so much for those mandatory ethical training courses on first day newly hired employees get. At my company they require to take it every year and not just from my company but also provider we service.

Those courses are made like on purpose very boring, cheesy, goofy and pain in the ass. The style reminds me of one of those mandatory DMV traffic courses you take after getting speed ticket to avoid getting it on the driver's record.
scross
join:2002-09-13
USA

scross

Member

Re: You're an idiot if you don't think this is the norm.

said by chgo_man99:

yawn!, so much for those mandatory ethical training courses on first day newly hired employees get. At my company they require to take it every year and not just from my company but also provider we service.

It's been my experience that the REAL problems here often start at the top, with the CxO/VP/Director class - that the lower rank-and-file employees are not only relatively honest and trustworthy in comparison to many of those folks, but that the damage they can do is quite limited even if they aren't.

NOCMan
MadMacHatter
Premium Member
join:2004-09-30
Colorado Springs, CO

NOCMan

Premium Member

It comes out of your pocket eventually

That BMW an IT Exec got comes right out of the entire deal somewhere. Snuffing these bastards getting a little on the side will save you money and get you lower prices.

Sadly I've seen this in pretty much any company I've worked for. Cars, Bikes, playoff tickets, and lots more.

RootWyrm
join:2011-05-09

RootWyrm

Member

Re: It comes out of your pocket eventually

said by NOCMan:

That BMW an IT Exec got comes right out of the entire deal somewhere. Snuffing these bastards getting a little on the side will save you money and get you lower prices.

If you knew which vendor it was, you'd just go "oh, yeah, nevermind. We'd probably pay MORE if we said no." And seriously, I have witnessed them pull that, among other highly questionable if not outright illegal tactics. Enough that any time I have a say, I laugh them right back out the door.

Can I prove it's endorsed at the corporate level? No, because they know damn well they can't afford to get caught. But I know for fact one of the good sales folks I used to work with was told explicitly by corporate to expense "anything" needed to get a particular deal done. (He turned around and bought hardware outright because corporate wouldn't authorize a loaner demo. Doing it right.)

Sadly I've seen this in pretty much any company I've worked for. Cars, Bikes, playoff tickets, and lots more.

That's because it's real hard to say no for a non-zero percentage of them. Because they know full well they are not only insultingly underpaid, but won't be getting that promised raise or a bonus because of "the economy."

When that guy who loves golf is getting paid $75K to oversee a deal worth at least $3M a YEAR (those are NOT a made up numbers either) gets offered a $15K country club membership? It's goddamn hard to say no to something like that. College tuition? Financially, he can't afford to say no. And believe me, the sales people know it.
scross
join:2002-09-13
USA

2 edits

scross

Member

Re: It comes out of your pocket eventually

On the loaner demo thing, I have more than once now found myself in the position of taking possession of something just to try it out, but not caring for it in the end and telling them to come pick it up. Only to have difficulties getting this done because it had already been posted on their books as a "sale" or whatever, even though we hadn't actually paid them a dime for it.

I remember that one place started trying to bill us for the equipment when we asked them to pick it up; we told them to shove it unless the could produce paperwork showing where we had agreed to purchase it. Another place threatened to sue us for non-payment; apparently that salesman had falsified paperwork making it look like we had agreed to a purchase, but since they had already fired him for various financial shenanigans, they didn't have a leg to stand on in the end. (He went on to even bigger and better things and the last I heard was in prison.) Another place waited almost a full year before picking up their equipment; meanwhile it sat over in a corner unused, and because of model upgrades and such it had become almost unsaleable in the interim. They finally picked it up only when we threatened to throw it out, because we were getting ready to move to a new location and we weren't willing to take it with us.

Of course, it wasn't long before we just started refusing the whole idea of taking a loaner demo whenever it was offered. Under the circumstances, I'm not surprised that a salespersons's corporate office would start refusing to offer one, too.