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Ex-Netflix VP found guilty of awarding tech contracts in exchange for bribes

319 points by codelion 5y ago

300 5y ago
The only thing I wonder about here is how it's possible that the infosec/GRC team didn't notice this.
- 2pEXgD0fZ5cF 5y ago
  I mean, what do you do if you notice this?
  - Mauricebranagh 5y ago
    Back when I worked for BT an anonymous letter from "a friend" to the internal security team was one option.
  - 300 5y ago
    By following the basics of ISO27K1, for example: Good infosec teams keep inventory of all the software used in the org. If they see that the org already pays a vendor for software doing X, a question should be raised, why we need another one for doing the same thing. Also, each new vendor or software provider needs go get a "security clearance", after the infosec teams checks their state of security. These kinds of practices would probably discover the shady intents.
- Mauricebranagh 5y ago
  Or the Accounts / CFO /Audit departments. This sort of fraud is quite common in white collar crime
  - jsmith99 5y ago
    As a financial auditor I've no idea how we would pick this up. It wouldn't hit the books of the company at all. We would research board members and check their other directorships but that only covers executives and their formal relations. It would be more likely to be picked up by the auditors of the company offering the bribe (what's this payment for?).
    - Mauricebranagh 5y ago
      I was thinking the internal controls that audited contracts, not external auditors.
  - Aeolun 5y ago
    How do you notice this? If the man is the ultimate arbiter of what does or does not get purchased, you don’t know why right?
    - Mauricebranagh 5y ago
      A sensible company has internal audits and checks and balances.
hannofcart 5y ago
Not sure how the law works in said jurisdiction but shouldn't the companies that bribed him also see some punishments? I see some rather prominent names in the list of vendors who chose to "pay to play".
- foreigner 5y ago
  My question as well. Similarly when corporations bribe politicians.
- remus 5y ago
  Obviously not the same jurisdiction, but this is how it works under UK law. Interestingly it also applies to representatives of that business working abroad which makes certain types of business very difficult to conduct (for example, moving freight in countries where bribery is routine: pay the bribe and you've broken UK law, don't pay the bribe and your product sits in the port waiting for spurious customs paperwork for months).
  - biztos 5y ago
    It is illegal for anyone working for an American company to bribe anyone in any country anywhere. Work for a big enough company and you will be told that at least once a year in “training.” Observe big American companies doing business all over the world and you will conclude the law is... selectively applied. I’m not sure, but I would guess this is advantageous to the US government in that US companies are allowed to compete globally but there is a wink-wink nudge-nudge acknowledgement they could be prosecuted at any time if they don’t play nice with Washington on other issues.
    - hobs 5y ago
      It really depends on the bribery you are talking about, there's definitely some exceptions enshrined when you pay to grease the wheels for normal actions. http://s3.documentcloud.org/documents/515229/a-resource-guide-to-the-u-s-foreign-corrupt.pdf http://s3.documentcloud.org/documents/515229/a-resource-guid... The FCPA’s bribery prohibition contains a narrow exception for “facilitating or expediting payments” made in furtherance of routine governmental action.159 The facilitating payments exception applies only when a payment is made to further “routine governmental action” that involves non-discretionary acts.160 Examples of “routine governmental action” include processing visas, providing police protection or mail service, and supplying utilities like phone service, power, and water. Routine government action does not include a decision to award new business or to continue business with a particular party.161 Nor does it include acts that are within an official’s discretion or that would constitute misuse of an official’s office
OldGoodNewBad 5y ago
This is, quite literally, how every It department is supplied. Some exec gets a BJ and a free trip and you get a terrible product you’re supposed to fit into your infra.
- nix23 5y ago
  Maybe in the dotcom market, but when it really maters, NO. And that's why for example Mainframes will exist for a long time if not forever.
  - sargun 5y ago
    This is effectively how 100% of medical deals got made.
    - nix23 5y ago
      Well i was talking about "traditional IT" hence the Mainframe thing (Finance etc.).
  - easton 5y ago
    Why do you think they chose the mainframe vendor (presumably IBM if it is still around) in the first place?
    - nix23 5y ago
      Reliability, predictability, compatibility...cost is not really important, and bribery is not a good idea in the Banking Industry. >IBM Or Fujitsu
    - ncmncm 5y ago
      IBM has very strict rules about anyone (below a certain but unspecified level!) offering or accepting anything at all. IBM employees you might meet are not allowed to so much as buy or accept lunch at a conference. The general rule for US corruption is that it is concentrated at the top. Grift at lower levels amounts to stealing from your superiors; you should be getting hand-downs, not going freelance. But US corruption has moved toward making it all legal at the top level; thus, "cost overruns" and "waste", all indictment-proof, because they are right there in the contract. So on any random tunnel, nuke, or weapons system, 10-25% is for the result and the rest goes discreetly into pockets. Top pockets. Ultimately, the latter motivates the project's organizational sponsors, and the project itself is just cover. VC firms designate a few winners and lots of loser startups. The losers are then milked, "placing" executives who then spend on designated services. In the '90s these usually included Oracle licenses at $500k and up, a certain "e-commerce platform" (name forgotten), and recruiting agencies. It seems like there are a lot more outfits to siphon money than before. (They fund losers because they are contractually obliged to place a certain amount of money in a fixed timeframe. When not enough winners show up, thd rest has to be placed on losers. Also, graft.)
JackPoach 5y ago
IT giants bribe officials on a regular basic by offering them seats on the board, for instance, or as speaking fees at company events.
- AussieWog93 5y ago
  That's exactly what happened at Telstra (Australia's largest Telco). Big exec launches a project costing something like 2 million dollars and two years to make an already working piece of in-house IT infrastructure reliant on a third-party product that charges per API call. The project finishes up, then he quits and joins the board of the company that provides said third-party product. Next exec comes along, realises that they're spending a million dollars a year on unnecessary API calls, spends another two years and two million dollars to rebuild a new version of the old system. The naughty exec won't be offered another job at Telstra, but got away scott free because Australian law regarding white collar crime is toothless.
  - t0mas88 5y ago
    I've seen it with Salesforce at least two times, of course not a board seat but the exec joining SF in a comfy role after launching a very expensive project at the company the exec came from. Could be that they were so impressed collaborating with Salesforce that they immediately before the project even ended wanted to join them, but it at the very least smells fishy.
- southerntofu 5y ago
  Or by organizing a congress and bribing everyone with free devices (tablets/phones), like Microsoft has been doing with the french Ministry of Education for about a decade.
tasssko 5y ago
Regardless of the perpetrator at Netflix to be named as one of the companies implicated in this is also very damning. I have looked at all the suppliers and added them to my black list. Fortunately I have never worked with any of them so I don't have to cancel anything.
FriedrichN 5y ago
My lack of surprise sadly exceeds my indignation.
raverbashing 5y ago
The surprise here is that this person got caught. (And don't take me wrong, I'm very happy this happened) The bigger companies will also bully you and "tell" you to your boss because how dare you don't buy their overpriced POS from that big company. Are they indicting the companies that did this as well? Be very aware if you're a founder, I wouldn't hire people with even a vague connection to those vendors and would watch out for purchases.
- zibzab 5y ago
  > The bigger companies will also bully you and "tell" you to your boss because how dare you don't buy their overpriced POS from that big company. A particular company came to my mind reading this. It starts with an O.
  - jiscariot 5y ago
    The 'O' company with more lawyers than engineers?
spoonjim 5y ago
LOL what a moron. Was making north of $1 million a year at Netflix most likely, now he’s going to do 10+ years in the slammer and lose his house.
- tgv 5y ago
  And now remember he was VP of ops. It's always the psychopaths that get the corner office.
- Blikkentrekker 5y ago
  Imagine the world we would live in if crime would pay, even if one be caught for it. The plan by which most criminals enter crime, entails not being caught.
  - varispeed 5y ago
    > entails not being caught No, they calculate the cost of being caught and factor that into their margins. Only problem for them is if they get more time they calculated they would get or that their estate gets confiscated (and LE found where they stashed everything).
Andrew_nenakhov 5y ago
Really skilled execs get kickbacks for products they planned to use anyway, and do not get caught.
- throw_m239339 5y ago
  Really skilled "exec" fraudsters aren't stupid enough to ask for money or gifts while they are on the job. They will wait until they change occupations to cash out legally. For instance Business B bribes individual A with future speaking engagements, a seat on their board or another executive position. This Netflix IT exec was too greedy.
  - Andrew_nenakhov 5y ago
    At a certain level, nobody is asking for anything. A lot of things are negotiated without even mentioning the subject directly. When two people who understand such nuances find each other, it works seamlessly and without evidence. As for waiting to cash out, there are always ways: everybody has a favourite nephew or college friend, who has an IT consultancy/marketing firm/charity/pet zoo/whatever.
- StreamBright 5y ago
  There are other ways. Just ask people with the right skillset and experience. There are entire industries built around this in certain countries.
patrec 5y ago
Michael Kail, the Netflix exec convicted by a jury trial, had kickback agreements with the following vendors, according to the article: - Netenrich (and VistaraIT, wholly owned by Netenrich) - Platfora - Sumo Logic - Netskope - Maginatics - ElasticBox - Numerify Any missing?
- Firefishy 5y ago
  Wikipedia updates pending ;-)
- yellow_mixer 5y ago
  Sumo Logic sales once sent me a targeted email asking if I needed help getting the most out of my AWS S3 Load Balancer logs. The creepy part is I just created an S3 bucket the previous day that had the strings “load balancer” and “logs”. They must be scanning S3 bucket names for key words and maintain or pay for a list of AWS account id mappings to likely owners.
  - RileyJames 5y ago
    Maybe. But I’d also guess your browser history in the lead up to / around the creation of those buckets would also indicate that you were in the process of managing load balancer logs. Free dev content exists to educate / onboard to product. It’s utilised in exactly this manner to determine what & when a developer is trying to achieve. And then sell them on suitable solutions.
  - NullPrefix 5y ago
    I am not saying that an analog of [0] happened 0: https://news.ycombinator.com/item?id=26113198 https://news.ycombinator.com/item?id=26113198
  - fnord77 5y ago
    or AWS sold them rough sketches of your activity.
  - xtracto 5y ago
    It was surprising to see SumoLogic there... I used them in a previous company and the service was generally good. Sad to see they subscribed to such shady practices.
jakubp 5y ago
I wonder... what's the actual crime here? I don't know how US law works. In my country there is no "bribe" in the private sector, it's probably still not allowed in some cases (certainly publicly traded companies), but I'm assuming Netflix wasn't a public company during that time. Can someone explain? If a director is given freedom to make certain purchasing decisions on behalf of a company (private company at that point, I assume), why specifically is it a criminal offense in the US to be rewarded money for it? (I don't mean money laundering i.e. hiding source of income, I mean the actual "bribe") [Edit] I did just find out that my country also has "management bribery" as a criminal offense within the private sector.
- deleted 5y ago
  [deleted]
- lodovic 5y ago
  Was wondering the same thing. The article mentions the suit is Netflix vs the exec, so this will at least be breach of contract.
  - jeffwilcox 5y ago
    Their standard employee agreement must include a set of clauses relating to conflict of interest.
  - jeffbee 5y ago
    There may indeed by a Netflix vs. the exec, but this article is United States vs. the exec. Fraud is a crime. Wire/mail fraud is a federal crime.
- Hamuko 5y ago
  The article says "wire fraud, mail fraud, and money laundering". So basically he used telecommunications/the Internet and the US postal system to defraud his employer, and then laundered his dirty money (I assume using the family trust mentioned in the article).
- capableweb 5y ago
lodovic 5y ago
I see this happening all the time. Our chief architect got a few trips to SF with hotel, lots of swag and now we all have to use this crappy data analytics tool. A manager got an invite to speak at a conference which was a disguised sales pitch, and a month later we switched static analysis tool. The former was working fine. Would be interesting to know if he's liable for that.
- capableweb 5y ago
  It's interesting that the line between cargoculting a product and outright being bribed is so thin apparently. Maybe this conviction will make people think twice in the future before cargoculting, but that's probably just wishful thinking.
- notsureaboutpg 5y ago
  That's not the same though. Flying someone out and putting them in swanky accommodations for a product pitch is fine, though I think the line is gray here. Like flying out to the office makes sense. Flying you out to the Bahamas at an all inclusive resort for 7 days with your family for a product pitch? Maybe that's getting on the disallowed side.
smashah 5y ago
Wait so if the products actually worked as expected then he would not have been caught/found guilty? Why is Adam Neumann not also facing prison time for leasing his own building/selling "we" to wework?
- anotha1 5y ago
  Because this is common practice. The business owner my dad worked for "leased" the building and warehouse from his son.
  - detaro 5y ago
    Owner is a relevant point. If you funnel shareholder/co-owner money to you that's a problem, if you entirely own the company that argument goes away.
    - anotha1 5y ago
      Yeah, probably not unethical from that standpoint. My dad seemed to think it was some sort tax avoiding inheritance scheme. I guess my question would be, is there a point where it does become illegal even if there was an individual owner? Is there a threshold where leasing at higher than market rate becomes illegal?
      - lotsofpulp 5y ago
        Why would it be illegal to pay yourself more than market rate? In the US, you typically want different entities owning the real estate versus the ones operating the business for liability and tax purposes. The IRS treats owners' basis differently based on whether the income is due to passive (real estate rental) or non passive activity (operations).
        anotha1 5y ago
        Why? Idk that's why I'm asking. And your comment didn't help clear anything up other than getting across that you are obviously superior in the field of tax law. Thanks.
KingOfCoders 5y ago
I think "forced" is a strong word here for making a purchasing decision.
StreamBright 5y ago
This is present in any sufficiently large organization. I have seen people getting fired over it multiple times.
dsr_ 5y ago
It's not that I mind being bribed. It's that the offers are insultingly low. A coffee mug in exchange for an appointment. A lunch coupon in exchange for an appointment. A USB flash drive in exchange for intelligence about the company. A "chance" at an iPad in exchange for filling out a 12 page survey. These just don't cross any reasonable risk/reward threshold. Did this person get offered multiple years of their salary, or did they not do any thinking at all?
- conanbatt 5y ago
  Read the article and find out!
- jjeaff 5y ago
  The miniscule value of those items is exactly what makes them -not- bribes.
  - ceejayoz 5y ago
    Legally, yes. Functionally, they still work. https://www.nytimes.com/2009/05/19/health/research/19beha.html https://www.nytimes.com/2009/05/19/health/research/19beha.ht... > A study reports that students from a medical school where such gifts are allowed had a more favorable attitude toward a cholesterol drug than did students from a school where they are banned. > Although hospitals have long discussed what restrictions to place on the more valuable offerings lavished by drug companies, the researchers, whose study appears in The Archives of Internal Medicine, suggest that no gift is too small.
    - retsibsi 5y ago
      I think there's a decent argument that 'bribe' still isn't the most applicable category. The gifts are certainly used as a manipulative tactic, but if their value is trivial and they are given unconditionally, maybe they have more in common with practices like hiring attractive representatives and instructing them to be friendly when pitching a product (and also with ordinary advertisements; part of the point of those free pens is simply to get a name or logo into the doctor's head). They're tactics to give the product a positive sheen and 'earn' some goodwill and familiarity, rather than items of (non-trivial) material value used to incentivise the desired behaviour. edit: I'm thinking of practices like the one referred to in the nyt article -- gift-giving to doctors by drug manufacturers. The top-level comment that started this chain did talk about items offered as part of a direct exchange, which is different.
taurath 5y ago
Welcome to the old boys network, same as it ever was. This isn't marketing, its corruption. The advantage of "knowing the right people" in this case was probably half of some of these companies value. You can say its always been that way and you'd be right, but I think its wrong, and ultimately bad for both customers and people who are forced to work with poor and broken tools.
williesleg 5y ago
Sounds like the entitled BLM network, they shake you down and if you don't pay they protest and kick your windows in.
austincheney 5y ago
No mention that those who paid the bribes were prosecuted.
- meepmorp 5y ago
  Per the article, he was convicted of fraud and money laundering. Depending on how it was handled, it might be that the companies that paid the bribes have enough plausible deniability to avoid prosecution.
INTPenis 5y ago
That title is funny. I work at big nameless european telco and for the last 10 years that's exactly how I perceive the whole culture here. Some higher up, either the CTO, CIO, or close to those roles, gets a pamphlet about some shitty product. And without listening to anyone buys it and forces all us techs to use it for a year or two before they move on to the next shitty product. In one case we even had a CTO force a shitty product on us, speak very highly about it, only to quit and take a position at the vendor of the shitty product.
- canadianfella 5y ago
  https://en.m.wikipedia.org/wiki/Stephen_Elop https://en.m.wikipedia.org/wiki/Stephen_Elop
- knuthsat 5y ago
  Yeah, the same thing in European banks. It gets quite obvious when executives in local branches start pushing for shitty products. When I started working professionally, I always thought that eventually the best product wins. Then I was struck with this kind of reality, where the product with the biggest people network wins. Similar thing ended up being true for me. Without a good support network, I won't end up anywhere even if I have above average abilities.
  - Blikkentrekker 5y ago
    I find this to be an interesting thing about reading the Torvads–Tanenbaum debate, that both sides seemed to assume without much consideration that the best instruction set, and product in general, would always win. With instruction sets in particular, there is a very large amount of inertia.
    - kjs3 5y ago
      To be fair, Tanenbaum is an academic and Torvalds was not that far out of college. It's easy to be idealistic like that when you haven't been jaded by experience in the real world.
  - 5y ago
elzbardico 5y ago
This kind of thing is way more common in the enterprise world than we care to admit. But at big tech I admit I was surprised. One of the perks of working to big tech was supposedly being imune to this kind of shenanigans from the suits.
graderjs 5y ago
Clearly only Netflix is doing this. Every other company always implements BYO-whatever policies and a democratic, bottom up, consensus based, grassroots approach to trialing and adopting the next whizbang new shiny things. That dastardly Nextflix, at it again, I can't believe them...
- draw_down 5y ago
  Nobody is saying that, come on
- dmix 5y ago
  Regardless of how common shitty and vaguely illegal sales tactics, this was one was particularly egregious. He set up a corporation and was a paid ‘advisor’ at a company Netflix was paying large amounts of money. And the pure number of times he did it. Criminal’s greed always bring them down and this guy went massive.
  - graderjs 5y ago
    If it was just the usual deal where there's some sort "goings on" between vendor sales and procurement/execs, and then everyone needs to use the product from the top-down, that's normal, but not great for enterprise software innovation or people who use it, IMO. Anyway, I think the situation described where former execs become advisors on the contractor side and use their contacts to get contracts, is exactly the deal with K-street and defense contracts. Except in this case, the guy was still on the inside! Not ok! But once you're out, that's cool /S
buro9 5y ago
The startup world version of this is being both a decision maker at a company and an angel investor, as then you can force what you invest in on your employer.
einpoklum 5y ago
As a non-US'er, there are several things I don't understand here: 1. Why was the federal government suing Kail, rather than the company? i.e. on what basis do his actions constitute a criminal offense, when conducted within a single organization (the company)? 2. I remember hearing the terms "mail fraud" and "wire fraud" a lot, but what do Kail's actions have to do with mailing or wiring anything? 3. From the description, it seems like Kail's actions were pretty transparent. Wasn't he called out immediately on this stuff?
- PeterisP 5y ago
  1. Netflix itself did nothing wrong - it's lawful for a company to use shitty expensive useless products. On the other hand, if a company officer takes bribes to act against the interests of their employer, they're breaching their duty of care towards the employer and defrauding them, and that is a felony. I'm not certain about the guilt of the bribing company, that might depend on the exact details and where it happens/which law applies. 2. "Standard" in-person fraud is prosecuted by the states, but fraud over mail or wires is a federal crime, so if any long-distance communications were involved then the federal justice system can (also) get involved.
  - einpoklum 5y ago
    > breachingtheir duty of care towards the employer and defrauding them That's the part that sounds a bit strange to me. I mean, breach of duty is one thing, and fraud is a second thing. But I guess that's how fraud is defined in US criminal law. > 2. "Standard" in-person fraud is prosecuted by the states, but fraud over mail or wires is a federal crime, so if any long-distance communications were involved then the federal justice system can (also) get involved. Well, the relations between a company and its officer are in-person, aren't they? Or is it the case that if I defraud you and during that time call your phone once, I can be prosecuted for "wire fraud"?
    - PeterisP 5y ago
      The definition is "the use of an interstate wire communication to further the scheme". Email and phone qualifies, and it does not need to play a crucial role in the scheme to defraud, it only needs to be made in order to advance the scheme somehow; a single email exchange about the kickbacks with a vendor sales representative in another state might be sufficient push it from "normal" fraud to wire fraud.
postit 5y ago
This reminds me the first time I got in the process to sign a 1MM contract. I kept pushing for a price reduction and the sales guy kept giving me clues of how this would affect commission. I had no idea that he was talking about my commission. It was so ridiculous that I involved compliance and shit scaled pretty quickly.
- gnfargbl 5y ago
  Did you get as far as finding out the level of bribe that the sales guy was offering? I'm curious about the going rate for corporate graft.
- notyourday 5y ago
  When I was signing off on a dotted line, I have adopted the Walmart approach from the early nineties -- vendors willingness to wine and dine us meant that the price was still too high. It worked surprisingly well as a signal. We were able to get our costs cut in nearly half on very expensive gear.
  - cutemonster 5y ago
    How did you find out that they no longer wanted to wine and dine? E.g. they usually contacted you, but stopped?
    - notyourday 5y ago
      Across multiple vendors ( deal value ~2-5 million a year per deal ) the progression of where the sales people wanted to talk to us pretty much always went like this: massive wine and dine [5-6 people from out side, two to three stops a night] -> dinners in nice restaurants [ 3-4 people on our side] -> lunches in nice restaurants [1-2 people on our side ] -> lunches [ me or me +1 on our side] -> coffee [ just me ] This roughly corresponded to initial price down to "you are killing us" price, the later being additional 35-50% discount off the initial proposal ( which would typically be their published price less 20-30% to begin with )
gopaz 5y ago
Had the same suspicion when the order to install Splunk everywhere came from above. We already had central logging for years... No reason was given. Just. Do. It.
ewestern 5y ago
> Kail created and controlled a limited liability corporation called Unix Mercenary, LLC, This is like if Bernie Madoff named his firm Ponzi Holdings, Inc.
hankchinaski 5y ago
not surprised given netflix culture
swiley 5y ago
What's the big deal? This happens in most places especially universities. /s
ncmncm 5y ago
At many companies you need to be VP or director of HR to get away with this stuff. Companies tolerate it in HR because HR heads do it at all the other companies, so firing one doesn't help; the next one will do it too. The ones that seem not to be doing it have a trickier grift that is harder to quantify: better the devil you know than the one you don't. People disinclined to grifting gravitate to other departments, leaving it to them. There is a great deal of corporate behavior that can only be understood as a vehicle to generate opportunities for kickbacks.
acidburnNSA 5y ago
I've been joking with tech colleagues that the only explanation for some IT department choices is a deep kickbacks program. Just when I convinced myself that was paranoid now I read this!
debarshri 5y ago
In mu opinion, enterprise product space is one of the weird space ever. Having seen tons of tools from big data to devops tools, it is all about marketing and more importantly hardcode sales. Another things that I observed is that no body gets fired for buying enterprise products. In the famous saying, "No body gets fired for buying IBM", these days you can replace IBM with any enterprise product company because they are using the same playbook. Another thing I have started observing is that startup who actually start with solving real problem from scaleups and midmarket, has to deploy a playbook like IBM, Oracle to win market share in Enterprise. However, I am truly optimistics about the new trend of consumerization of enterprise as that starts democratizing these purchasing decisions and gives purchasing decision power to the dev themselves.
deleted 5y ago
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runawaybottle 5y ago
Nice, a classic case of corruption. Sometimes, the world really is that simple.
galkk 5y ago
There was recently a Show HN post where CTO from largest customer is cofounder of a product. https://news.ycombinator.com/item?id=26855726 https://news.ycombinator.com/item?id=26855726
deleted 5y ago
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_wldu 5y ago
This has been my experience too. The amount of vendor emails and offers of wine, beer, food, etc. is ridiculous. And the IT conferences (back before covid) were crazy too. Young women dressed in tight clothing working vendor booths trying to draw in customers. It all felt so wrong. I can see how some managers can really be drawn into this sort of lifestyle. They are made to feel very important and are given perks, but they are being played/used, they just don't realize it. I would imagine politicians have the same sort of bribes (except from lobbyists).
softwaredoug 5y ago
I hope the vendors are also charged or punished in some way. They're basically cheating the other vendors that competed for the work fairly out of potential contracts.
- borski 5y ago
  Netflix was a customer of ours and Mike was a contact, but we never gave anything to him in the way of equity or cash or gifts. But that is only because I had previously worked in intelligence, where if that happened and you got caught, you were not going to be having a very good time. I can imagine plenty of new startups that do not know how enterprise sales are done, looking for an advisor who is high up and has connections, and expect him to disclose the relationship prior to any purchase order being made by Netflix. The startup has no idea about the inner workings, unless it was extremely explicit, but it usually isn't.
chad_strategic 5y ago
This should be a Netflix problem? I'm kind of confused how this is against the law? I can understand tax evasion component and maybe a little wire fraud. (Ignoring the tax evasion issue for a second) They instilled confidence and the ability to award contracts to outside firms for this officer of the company. If company officer hired bad firms eventually he should have been fired for poor performance? Regardless how much kick back they provide him. It sounds like the contract were between two private citizens/entities. Why is the Federal Government doing internal investigation for Netflix? Other than tax fraud, the only victim was Netflix. Not the American public?
- dwheeler 5y ago
  Bribery is against the law, I presume this is simply the result of a criminal investigation. Also, bribery is insidious. Once some happens, there is considerable pressure for competitors to also engage in bribery to stay in business. So it is important to stop earlier, where you can, because over time it can be very hard to root out. Like murder and theft, it will happen sometimes, but you're trying to discourage it.
- chad_strategic 5y ago
  Okay, I'm not a lawyer and I'm trying to avoid a little work today etc. Here is a quick search of the term bribery, https://bribery.uslegal.com/solicitation-and-attempted-bribery/ https://bribery.uslegal.com/solicitation-and-attempted-bribe... Everything I run across refers to public official and public trust. I wonder if there are any lawyer out there that can clarify this? I own my own company. I should be able to award any all contracts to who bribes me the most money?
  - pwagland 5y ago
    If you _own_ the company 100%, then sure. Since at that point it isn't really a bribe, it's a discount or a service in kind. I am reasonably confident though that this Netflix VP didn't own Netflix. As such he was defrauding the company and/or stockholders and/or owners of the company, since they took money that was rightfully the companies. To a very real extent this is stealing from the company. As a 100% owner of the company it is quite difficult to "steal" from the company, although it is definitely possible to commit tax fraud by pushing stuff through the company instead of through personal accounts. Note that accepting a bribe and not declaring it as some form of income, either personal or business, is probably illegal in your jurisdiction, since at that point it is an undeclared income stream.
projectileboy 5y ago
I guess half a lifetime of slogging away at big orgs has made me cynical, but I can hardly even see how this rates as news. Once worked at a place where we spent a month on an app server bakeoff, selected vendor X. Following week, boss’ boss informs us we’re going with vendor Y. Corrupt? You tell me. Or the time I worked at a Fortune 100 company that had their entire IT outsourced to one of the big consultancies, only to find out that the CIO had a relationship with that consultancy. I could go on. It used to frustrate me more until I finally realized that in a big org, multiple games are being played, and you are probably not at the table of any game being played that matters.
- EveYoung 5y ago
  This is very much my experience. I went through a couple of very lengthy and detailed RFI processes to select the best vendors, just for the procurement to fail at the final step for some arbitrary reasons with the VP's prefered solution being the only valid alternative.
- Excluse 5y ago
  If you want to become even more cynical about big orgs, I have to recommend reading The Gervais Principle [1]. [1] https://www.ribbonfarm.com/2009/10/07/the-gervais-principle-or-the-office-according-to-the-office/ https://www.ribbonfarm.com/2009/10/07/the-gervais-principle-...
  - projectileboy 5y ago
    Oh, indeed. That book impacted me in a big way. It’s bleak, but I did appreciate that it was the first thing I ever read that actually explained organizations in a way that made sense.
1cvmask 5y ago
There is an interesting anecdote here. There was a saying at Google Apps (now Workplace) of WWMD What Would Mike (Mike Kail) Do when they talked about cloud products adoption by Netflix. The person who said that at the Google Apps summit held at Fort Mason was Clay Bavor who was very close to Marissa Mayer (head of Yahoo at the time). After that Mike Kail left Netflix to Yahoo. Interestingly Mike Kail chose onelogin for Netflix at the time for non-obvious reasons.
caffeine 5y ago
I’m shocked that what he did is considered criminal and worthy of prison. It should be a civil lawsuit between him and Netflix, and the worst they should be able to do is bankrupt him. This guy has not raped anyone, assaulted anyone.. why do we taxpayers need to pay to lock this guy up in a cage? Does no good for anybody.
- lainga 5y ago
  To encourage the others, maybe?
- riku_iki 5y ago
  > This guy has not raped anyone, assaulted anyone.. In my mind his crime is much more severe than shoplifting or paying by fake banknotes. > why do we taxpayers need to pay Both, Netflix as a company, and its shareholders are also tax payers, and can expect to be protected from fraud/crimes using taxpayers money.
  - caffeine 5y ago
    I guess I don't understand why it's a crime and not just a breach of contract. Imagine if rather than an employee this was a consulting firm that had done the exact same thing (taken payments for signing Netflix up to unnecessary contracts). Nobody would be going to jail, they would just sue the consultancy, which might go out of business.
    - riku_iki 5y ago
      I don't have details in my hands, only pure speculations, but it is likely possible to check on which counts this case has been classified as a criminal offense.
    - mywittyname 5y ago
      Because there are laws prohibiting exactly what he did. It's really that simple. There are laws against doing a thing, he did the thing and got caught. Go to jail, do not cross Go, give back the $500,000.
kevindong 5y ago
The DoJ press release has the actual crimes listed: > Kail was indicted May 1, 2018, of nineteen counts of wire fraud, three counts of mail fraud, and seven counts of money laundering, in violation of 18 U.S.C. §§ 1341 (mail fraud), 1343 (wire fraud), 1346 (honest services fraud), and 1957 (money laundering). https://www.justice.gov/usao-ndca/pr/former-netflix-executive-convicted-receiving-bribes-and-kickbacks-companies-contracting https://www.justice.gov/usao-ndca/pr/former-netflix-executiv...
calkuta 5y ago
Not sure why the people of America need to be spending tax money on sorting this out, or punishing this person. If Netflix wants to allow their business to be run this way, it's fine with me.
yumraj 5y ago
One thing I've always found amusing about US is that bribing a normal person is illegal, as it should be, but bribing a politician/Congressman via campaign funds and lobbying is legal.
- schiang 5y ago
  Land of the free and home of the brave
- max_ 5y ago
  Unlike the general public. Politicians have mastered the "legal acrobatics" ... so have a few unknown intelligent criminal's
- ativzzz 5y ago
  Biggest difference between US and rest of the world is that in the rest of the world it's more accepted to bribe normal people.
- balozi 5y ago
  Politicians? I'll have you know that we now bribe "activists".
  - elkos 5y ago
    Do tell.
- oh_sigh 5y ago
  But almost all political donations, I would think, are because the entity donating already supports the viewpoint of the elected official. Is it bribing if there isn't a quid pro quo? I can give a congressperson a bunch of money with a note attached saying "Don't vote for bill XYZ", but there is no promise or even acknowledgement from the congressperson that they will do anything at all for you.
  - spbaar 5y ago
    there's also the negative pressure. We might see a Telco give 1k to 50 congressmen and think they bribed cheaply, which they did. But it also means if you betray their trust they're willing to spend 50k on your opponent. Also, making sure a plurality of people in the room have some stake in the Telco can prevent uncomfortable conversations from even arising. After all, there are always other issues to work on that won't upset your colleagues
max_ 5y ago
> "To facilitate kickback payments, the evidence at trial showed that Kail created and controlled a limited liability corporation called Unix Mercenary, LLC," the DOJ said. "Established on February 7, 2012, Unix Mercenary had no employees and no business location. Kail was the sole signatory to its bank accounts."
coding123 5y ago
With AWS luckily I think a lot of this goes away. Back in the first dot com boom, we had a CTO or CIO or whatever but he had a side business where he just sold very expensive hardware to the company. He even brought on weird ass shit like AlphaServers/DigitalServers with a special version Windows NT. I mean that's fine since all our stuff was Java, but it was clearly all purchased to personally enrich this guy. OMG, I just looked up his name - this all happened after this company, but he has 13 arrest records from 2006 to 2018 and apparently now he lives in Las Vegas.
nflxsre 5y ago
Followed this one closely as did many in the Silicon Valley IT circle. Court docs showed he was making ~900k per year so this decision was very short sighted. He bought a house with kickbacks for ~800k which was forfeited as part of sentencing and now worth over $2.5M. Prior to getting caught, he had been recruited as CIO of Yahoo pre-acquisition to Verizon. There is no public data on his salary but comparable C level excecs were making millions per year. The previous CIO had a $30M exit package. When Verizon bought Yahoo he could have made millions more in retention and/or exit package. All said, this easily cost him $10M in lost compensation to date and orders of magnitude more given his career trajectory. Albeit he made a poor decision, Mike was an incredibly talented engineer/leader. Shame to see his career end this way.
mring33621 5y ago
At a software role at a small company, I had a bonus tied to the successful integration of a 3rd party workflow tool into our offering. The 3rd party was apparently a friend of our owner. I tested the tool in question and decided that it added no value, so I did not pursue the integration. As a consequence, I did not receive the bonus. My career has suffered several times because I will not rubber stamp management whims. But I just can't.

319 points by codelion 5y ago

300 5y ago

The only thing I wonder about here is how it's possible that the infosec/GRC team didn't notice this.

2pEXgD0fZ5cF 5y ago
I mean, what do you do if you notice this?
- Mauricebranagh 5y ago
  Back when I worked for BT an anonymous letter from "a friend" to the internal security team was one option.
- 300 5y ago
  By following the basics of ISO27K1, for example: Good infosec teams keep inventory of all the software used in the org. If they see that the org already pays a vendor for software doing X, a question should be raised, why we need another one for doing the same thing. Also, each new vendor or software provider needs go get a "security clearance", after the infosec teams checks their state of security. These kinds of practices would probably discover the shady intents.
Mauricebranagh 5y ago
Or the Accounts / CFO /Audit departments. This sort of fraud is quite common in white collar crime
- jsmith99 5y ago
  As a financial auditor I've no idea how we would pick this up. It wouldn't hit the books of the company at all. We would research board members and check their other directorships but that only covers executives and their formal relations. It would be more likely to be picked up by the auditors of the company offering the bribe (what's this payment for?).
  - Mauricebranagh 5y ago
    I was thinking the internal controls that audited contracts, not external auditors.
- Aeolun 5y ago
  How do you notice this? If the man is the ultimate arbiter of what does or does not get purchased, you don’t know why right?
  - Mauricebranagh 5y ago
    A sensible company has internal audits and checks and balances.

hannofcart 5y ago

Not sure how the law works in said jurisdiction but shouldn't the companies that bribed him also see some punishments? I see some rather prominent names in the list of vendors who chose to "pay to play".

foreigner 5y ago
My question as well. Similarly when corporations bribe politicians.
remus 5y ago
Obviously not the same jurisdiction, but this is how it works under UK law. Interestingly it also applies to representatives of that business working abroad which makes certain types of business very difficult to conduct (for example, moving freight in countries where bribery is routine: pay the bribe and you've broken UK law, don't pay the bribe and your product sits in the port waiting for spurious customs paperwork for months).
- biztos 5y ago
  It is illegal for anyone working for an American company to bribe anyone in any country anywhere. Work for a big enough company and you will be told that at least once a year in “training.” Observe big American companies doing business all over the world and you will conclude the law is... selectively applied. I’m not sure, but I would guess this is advantageous to the US government in that US companies are allowed to compete globally but there is a wink-wink nudge-nudge acknowledgement they could be prosecuted at any time if they don’t play nice with Washington on other issues.
  - hobs 5y ago
    It really depends on the bribery you are talking about, there's definitely some exceptions enshrined when you pay to grease the wheels for normal actions. http://s3.documentcloud.org/documents/515229/a-resource-guide-to-the-u-s-foreign-corrupt.pdf http://s3.documentcloud.org/documents/515229/a-resource-guid... The FCPA’s bribery prohibition contains a narrow exception for “facilitating or expediting payments” made in furtherance of routine governmental action.159 The facilitating payments exception applies only when a payment is made to further “routine governmental action” that involves non-discretionary acts.160 Examples of “routine governmental action” include processing visas, providing police protection or mail service, and supplying utilities like phone service, power, and water. Routine government action does not include a decision to award new business or to continue business with a particular party.161 Nor does it include acts that are within an official’s discretion or that would constitute misuse of an official’s office

OldGoodNewBad 5y ago

This is, quite literally, how every It department is supplied. Some exec gets a BJ and a free trip and you get a terrible product you’re supposed to fit into your infra.

nix23 5y ago
Maybe in the dotcom market, but when it really maters, NO. And that's why for example Mainframes will exist for a long time if not forever.
- sargun 5y ago
  This is effectively how 100% of medical deals got made.
  - nix23 5y ago
    Well i was talking about "traditional IT" hence the Mainframe thing (Finance etc.).
- easton 5y ago
  Why do you think they chose the mainframe vendor (presumably IBM if it is still around) in the first place?
  - nix23 5y ago
    Reliability, predictability, compatibility...cost is not really important, and bribery is not a good idea in the Banking Industry. >IBM Or Fujitsu
  - ncmncm 5y ago
    IBM has very strict rules about anyone (below a certain but unspecified level!) offering or accepting anything at all. IBM employees you might meet are not allowed to so much as buy or accept lunch at a conference. The general rule for US corruption is that it is concentrated at the top. Grift at lower levels amounts to stealing from your superiors; you should be getting hand-downs, not going freelance. But US corruption has moved toward making it all legal at the top level; thus, "cost overruns" and "waste", all indictment-proof, because they are right there in the contract. So on any random tunnel, nuke, or weapons system, 10-25% is for the result and the rest goes discreetly into pockets. Top pockets. Ultimately, the latter motivates the project's organizational sponsors, and the project itself is just cover. VC firms designate a few winners and lots of loser startups. The losers are then milked, "placing" executives who then spend on designated services. In the '90s these usually included Oracle licenses at $500k and up, a certain "e-commerce platform" (name forgotten), and recruiting agencies. It seems like there are a lot more outfits to siphon money than before. (They fund losers because they are contractually obliged to place a certain amount of money in a fixed timeframe. When not enough winners show up, thd rest has to be placed on losers. Also, graft.)

JackPoach 5y ago

IT giants bribe officials on a regular basic by offering them seats on the board, for instance, or as speaking fees at company events.

AussieWog93 5y ago
That's exactly what happened at Telstra (Australia's largest Telco). Big exec launches a project costing something like 2 million dollars and two years to make an already working piece of in-house IT infrastructure reliant on a third-party product that charges per API call. The project finishes up, then he quits and joins the board of the company that provides said third-party product. Next exec comes along, realises that they're spending a million dollars a year on unnecessary API calls, spends another two years and two million dollars to rebuild a new version of the old system. The naughty exec won't be offered another job at Telstra, but got away scott free because Australian law regarding white collar crime is toothless.
- t0mas88 5y ago
  I've seen it with Salesforce at least two times, of course not a board seat but the exec joining SF in a comfy role after launching a very expensive project at the company the exec came from. Could be that they were so impressed collaborating with Salesforce that they immediately before the project even ended wanted to join them, but it at the very least smells fishy.
southerntofu 5y ago
Or by organizing a congress and bribing everyone with free devices (tablets/phones), like Microsoft has been doing with the french Ministry of Education for about a decade.

tasssko 5y ago

Regardless of the perpetrator at Netflix to be named as one of the companies implicated in this is also very damning. I have looked at all the suppliers and added them to my black list. Fortunately I have never worked with any of them so I don't have to cancel anything.

FriedrichN 5y ago

My lack of surprise sadly exceeds my indignation.

raverbashing 5y ago

The surprise here is that this person got caught. (And don't take me wrong, I'm very happy this happened) The bigger companies will also bully you and "tell" you to your boss because how dare you don't buy their overpriced POS from that big company. Are they indicting the companies that did this as well? Be very aware if you're a founder, I wouldn't hire people with even a vague connection to those vendors and would watch out for purchases.

zibzab 5y ago
> The bigger companies will also bully you and "tell" you to your boss because how dare you don't buy their overpriced POS from that big company. A particular company came to my mind reading this. It starts with an O.
- jiscariot 5y ago
  The 'O' company with more lawyers than engineers?

spoonjim 5y ago

LOL what a moron. Was making north of $1 million a year at Netflix most likely, now he’s going to do 10+ years in the slammer and lose his house.

tgv 5y ago
And now remember he was VP of ops. It's always the psychopaths that get the corner office.
Blikkentrekker 5y ago
Imagine the world we would live in if crime would pay, even if one be caught for it. The plan by which most criminals enter crime, entails not being caught.
- varispeed 5y ago
  > entails not being caught No, they calculate the cost of being caught and factor that into their margins. Only problem for them is if they get more time they calculated they would get or that their estate gets confiscated (and LE found where they stashed everything).

Andrew_nenakhov 5y ago

Really skilled execs get kickbacks for products they planned to use anyway, and do not get caught.

throw_m239339 5y ago
Really skilled "exec" fraudsters aren't stupid enough to ask for money or gifts while they are on the job. They will wait until they change occupations to cash out legally. For instance Business B bribes individual A with future speaking engagements, a seat on their board or another executive position. This Netflix IT exec was too greedy.
- Andrew_nenakhov 5y ago
  At a certain level, nobody is asking for anything. A lot of things are negotiated without even mentioning the subject directly. When two people who understand such nuances find each other, it works seamlessly and without evidence. As for waiting to cash out, there are always ways: everybody has a favourite nephew or college friend, who has an IT consultancy/marketing firm/charity/pet zoo/whatever.
StreamBright 5y ago
There are other ways. Just ask people with the right skillset and experience. There are entire industries built around this in certain countries.

patrec 5y ago

Michael Kail, the Netflix exec convicted by a jury trial, had kickback agreements with the following vendors, according to the article: - Netenrich (and VistaraIT, wholly owned by Netenrich) - Platfora - Sumo Logic - Netskope - Maginatics - ElasticBox - Numerify Any missing?

Firefishy 5y ago
Wikipedia updates pending ;-)
yellow_mixer 5y ago
Sumo Logic sales once sent me a targeted email asking if I needed help getting the most out of my AWS S3 Load Balancer logs. The creepy part is I just created an S3 bucket the previous day that had the strings “load balancer” and “logs”. They must be scanning S3 bucket names for key words and maintain or pay for a list of AWS account id mappings to likely owners.
- RileyJames 5y ago
  Maybe. But I’d also guess your browser history in the lead up to / around the creation of those buckets would also indicate that you were in the process of managing load balancer logs. Free dev content exists to educate / onboard to product. It’s utilised in exactly this manner to determine what & when a developer is trying to achieve. And then sell them on suitable solutions.
- NullPrefix 5y ago
  I am not saying that an analog of [0] happened 0: https://news.ycombinator.com/item?id=26113198 https://news.ycombinator.com/item?id=26113198
- fnord77 5y ago
  or AWS sold them rough sketches of your activity.
- xtracto 5y ago
  It was surprising to see SumoLogic there... I used them in a previous company and the service was generally good. Sad to see they subscribed to such shady practices.

jakubp 5y ago

I wonder... what's the actual crime here? I don't know how US law works. In my country there is no "bribe" in the private sector, it's probably still not allowed in some cases (certainly publicly traded companies), but I'm assuming Netflix wasn't a public company during that time. Can someone explain? If a director is given freedom to make certain purchasing decisions on behalf of a company (private company at that point, I assume), why specifically is it a criminal offense in the US to be rewarded money for it? (I don't mean money laundering i.e. hiding source of income, I mean the actual "bribe") [Edit] I did just find out that my country also has "management bribery" as a criminal offense within the private sector.

deleted 5y ago
[deleted]
lodovic 5y ago
Was wondering the same thing. The article mentions the suit is Netflix vs the exec, so this will at least be breach of contract.
- jeffwilcox 5y ago
  Their standard employee agreement must include a set of clauses relating to conflict of interest.
- jeffbee 5y ago
  There may indeed by a Netflix vs. the exec, but this article is United States vs. the exec. Fraud is a crime. Wire/mail fraud is a federal crime.
Hamuko 5y ago
The article says "wire fraud, mail fraud, and money laundering". So basically he used telecommunications/the Internet and the US postal system to defraud his employer, and then laundered his dirty money (I assume using the family trust mentioned in the article).
capableweb 5y ago

lodovic 5y ago

I see this happening all the time. Our chief architect got a few trips to SF with hotel, lots of swag and now we all have to use this crappy data analytics tool. A manager got an invite to speak at a conference which was a disguised sales pitch, and a month later we switched static analysis tool. The former was working fine. Would be interesting to know if he's liable for that.

capableweb 5y ago
It's interesting that the line between cargoculting a product and outright being bribed is so thin apparently. Maybe this conviction will make people think twice in the future before cargoculting, but that's probably just wishful thinking.
notsureaboutpg 5y ago
That's not the same though. Flying someone out and putting them in swanky accommodations for a product pitch is fine, though I think the line is gray here. Like flying out to the office makes sense. Flying you out to the Bahamas at an all inclusive resort for 7 days with your family for a product pitch? Maybe that's getting on the disallowed side.

smashah 5y ago

Wait so if the products actually worked as expected then he would not have been caught/found guilty? Why is Adam Neumann not also facing prison time for leasing his own building/selling "we" to wework?

anotha1 5y ago
Because this is common practice. The business owner my dad worked for "leased" the building and warehouse from his son.
- detaro 5y ago
  Owner is a relevant point. If you funnel shareholder/co-owner money to you that's a problem, if you entirely own the company that argument goes away.
  - anotha1 5y ago
    Yeah, probably not unethical from that standpoint. My dad seemed to think it was some sort tax avoiding inheritance scheme. I guess my question would be, is there a point where it does become illegal even if there was an individual owner? Is there a threshold where leasing at higher than market rate becomes illegal?
    - lotsofpulp 5y ago
      Why would it be illegal to pay yourself more than market rate? In the US, you typically want different entities owning the real estate versus the ones operating the business for liability and tax purposes. The IRS treats owners' basis differently based on whether the income is due to passive (real estate rental) or non passive activity (operations).
      - anotha1 5y ago
        Why? Idk that's why I'm asking. And your comment didn't help clear anything up other than getting across that you are obviously superior in the field of tax law. Thanks.

KingOfCoders 5y ago

I think "forced" is a strong word here for making a purchasing decision.

StreamBright 5y ago

This is present in any sufficiently large organization. I have seen people getting fired over it multiple times.

dsr_ 5y ago

It's not that I mind being bribed. It's that the offers are insultingly low. A coffee mug in exchange for an appointment. A lunch coupon in exchange for an appointment. A USB flash drive in exchange for intelligence about the company. A "chance" at an iPad in exchange for filling out a 12 page survey. These just don't cross any reasonable risk/reward threshold. Did this person get offered multiple years of their salary, or did they not do any thinking at all?

conanbatt 5y ago
Read the article and find out!
jjeaff 5y ago
The miniscule value of those items is exactly what makes them -not- bribes.
- ceejayoz 5y ago
  Legally, yes. Functionally, they still work. https://www.nytimes.com/2009/05/19/health/research/19beha.html https://www.nytimes.com/2009/05/19/health/research/19beha.ht... > A study reports that students from a medical school where such gifts are allowed had a more favorable attitude toward a cholesterol drug than did students from a school where they are banned. > Although hospitals have long discussed what restrictions to place on the more valuable offerings lavished by drug companies, the researchers, whose study appears in The Archives of Internal Medicine, suggest that no gift is too small.
  - retsibsi 5y ago
    I think there's a decent argument that 'bribe' still isn't the most applicable category. The gifts are certainly used as a manipulative tactic, but if their value is trivial and they are given unconditionally, maybe they have more in common with practices like hiring attractive representatives and instructing them to be friendly when pitching a product (and also with ordinary advertisements; part of the point of those free pens is simply to get a name or logo into the doctor's head). They're tactics to give the product a positive sheen and 'earn' some goodwill and familiarity, rather than items of (non-trivial) material value used to incentivise the desired behaviour. edit: I'm thinking of practices like the one referred to in the nyt article -- gift-giving to doctors by drug manufacturers. The top-level comment that started this chain did talk about items offered as part of a direct exchange, which is different.

taurath 5y ago

Welcome to the old boys network, same as it ever was. This isn't marketing, its corruption. The advantage of "knowing the right people" in this case was probably half of some of these companies value. You can say its always been that way and you'd be right, but I think its wrong, and ultimately bad for both customers and people who are forced to work with poor and broken tools.

williesleg 5y ago

Sounds like the entitled BLM network, they shake you down and if you don't pay they protest and kick your windows in.

austincheney 5y ago

No mention that those who paid the bribes were prosecuted.

meepmorp 5y ago
Per the article, he was convicted of fraud and money laundering. Depending on how it was handled, it might be that the companies that paid the bribes have enough plausible deniability to avoid prosecution.

INTPenis 5y ago

That title is funny. I work at big nameless european telco and for the last 10 years that's exactly how I perceive the whole culture here. Some higher up, either the CTO, CIO, or close to those roles, gets a pamphlet about some shitty product. And without listening to anyone buys it and forces all us techs to use it for a year or two before they move on to the next shitty product. In one case we even had a CTO force a shitty product on us, speak very highly about it, only to quit and take a position at the vendor of the shitty product.

canadianfella 5y ago
https://en.m.wikipedia.org/wiki/Stephen_Elop https://en.m.wikipedia.org/wiki/Stephen_Elop
knuthsat 5y ago
Yeah, the same thing in European banks. It gets quite obvious when executives in local branches start pushing for shitty products. When I started working professionally, I always thought that eventually the best product wins. Then I was struck with this kind of reality, where the product with the biggest people network wins. Similar thing ended up being true for me. Without a good support network, I won't end up anywhere even if I have above average abilities.
- Blikkentrekker 5y ago
  I find this to be an interesting thing about reading the Torvads–Tanenbaum debate, that both sides seemed to assume without much consideration that the best instruction set, and product in general, would always win. With instruction sets in particular, there is a very large amount of inertia.
  - kjs3 5y ago
    To be fair, Tanenbaum is an academic and Torvalds was not that far out of college. It's easy to be idealistic like that when you haven't been jaded by experience in the real world.
- 5y ago

elzbardico 5y ago

This kind of thing is way more common in the enterprise world than we care to admit. But at big tech I admit I was surprised. One of the perks of working to big tech was supposedly being imune to this kind of shenanigans from the suits.

graderjs 5y ago

Clearly only Netflix is doing this. Every other company always implements BYO-whatever policies and a democratic, bottom up, consensus based, grassroots approach to trialing and adopting the next whizbang new shiny things. That dastardly Nextflix, at it again, I can't believe them...

draw_down 5y ago
Nobody is saying that, come on
dmix 5y ago
Regardless of how common shitty and vaguely illegal sales tactics, this was one was particularly egregious. He set up a corporation and was a paid ‘advisor’ at a company Netflix was paying large amounts of money. And the pure number of times he did it. Criminal’s greed always bring them down and this guy went massive.
- graderjs 5y ago
  If it was just the usual deal where there's some sort "goings on" between vendor sales and procurement/execs, and then everyone needs to use the product from the top-down, that's normal, but not great for enterprise software innovation or people who use it, IMO. Anyway, I think the situation described where former execs become advisors on the contractor side and use their contacts to get contracts, is exactly the deal with K-street and defense contracts. Except in this case, the guy was still on the inside! Not ok! But once you're out, that's cool /S

buro9 5y ago

The startup world version of this is being both a decision maker at a company and an angel investor, as then you can force what you invest in on your employer.

einpoklum 5y ago

As a non-US'er, there are several things I don't understand here: 1. Why was the federal government suing Kail, rather than the company? i.e. on what basis do his actions constitute a criminal offense, when conducted within a single organization (the company)? 2. I remember hearing the terms "mail fraud" and "wire fraud" a lot, but what do Kail's actions have to do with mailing or wiring anything? 3. From the description, it seems like Kail's actions were pretty transparent. Wasn't he called out immediately on this stuff?

PeterisP 5y ago
1. Netflix itself did nothing wrong - it's lawful for a company to use shitty expensive useless products. On the other hand, if a company officer takes bribes to act against the interests of their employer, they're breaching their duty of care towards the employer and defrauding them, and that is a felony. I'm not certain about the guilt of the bribing company, that might depend on the exact details and where it happens/which law applies. 2. "Standard" in-person fraud is prosecuted by the states, but fraud over mail or wires is a federal crime, so if any long-distance communications were involved then the federal justice system can (also) get involved.
- einpoklum 5y ago
  > breachingtheir duty of care towards the employer and defrauding them That's the part that sounds a bit strange to me. I mean, breach of duty is one thing, and fraud is a second thing. But I guess that's how fraud is defined in US criminal law. > 2. "Standard" in-person fraud is prosecuted by the states, but fraud over mail or wires is a federal crime, so if any long-distance communications were involved then the federal justice system can (also) get involved. Well, the relations between a company and its officer are in-person, aren't they? Or is it the case that if I defraud you and during that time call your phone once, I can be prosecuted for "wire fraud"?
  - PeterisP 5y ago
    The definition is "the use of an interstate wire communication to further the scheme". Email and phone qualifies, and it does not need to play a crucial role in the scheme to defraud, it only needs to be made in order to advance the scheme somehow; a single email exchange about the kickbacks with a vendor sales representative in another state might be sufficient push it from "normal" fraud to wire fraud.

postit 5y ago

This reminds me the first time I got in the process to sign a 1MM contract. I kept pushing for a price reduction and the sales guy kept giving me clues of how this would affect commission. I had no idea that he was talking about my commission. It was so ridiculous that I involved compliance and shit scaled pretty quickly.

gnfargbl 5y ago
Did you get as far as finding out the level of bribe that the sales guy was offering? I'm curious about the going rate for corporate graft.
notyourday 5y ago
When I was signing off on a dotted line, I have adopted the Walmart approach from the early nineties -- vendors willingness to wine and dine us meant that the price was still too high. It worked surprisingly well as a signal. We were able to get our costs cut in nearly half on very expensive gear.
- cutemonster 5y ago
  How did you find out that they no longer wanted to wine and dine? E.g. they usually contacted you, but stopped?
  - notyourday 5y ago
    Across multiple vendors ( deal value ~2-5 million a year per deal ) the progression of where the sales people wanted to talk to us pretty much always went like this: massive wine and dine [5-6 people from out side, two to three stops a night] -> dinners in nice restaurants [ 3-4 people on our side] -> lunches in nice restaurants [1-2 people on our side ] -> lunches [ me or me +1 on our side] -> coffee [ just me ] This roughly corresponded to initial price down to "you are killing us" price, the later being additional 35-50% discount off the initial proposal ( which would typically be their published price less 20-30% to begin with )

gopaz 5y ago

Had the same suspicion when the order to install Splunk everywhere came from above. We already had central logging for years... No reason was given. Just. Do. It.

ewestern 5y ago

> Kail created and controlled a limited liability corporation called Unix Mercenary, LLC, This is like if Bernie Madoff named his firm Ponzi Holdings, Inc.

hankchinaski 5y ago

not surprised given netflix culture

swiley 5y ago

What's the big deal? This happens in most places especially universities. /s

ncmncm 5y ago

At many companies you need to be VP or director of HR to get away with this stuff. Companies tolerate it in HR because HR heads do it at all the other companies, so firing one doesn't help; the next one will do it too. The ones that seem not to be doing it have a trickier grift that is harder to quantify: better the devil you know than the one you don't. People disinclined to grifting gravitate to other departments, leaving it to them. There is a great deal of corporate behavior that can only be understood as a vehicle to generate opportunities for kickbacks.

acidburnNSA 5y ago

I've been joking with tech colleagues that the only explanation for some IT department choices is a deep kickbacks program. Just when I convinced myself that was paranoid now I read this!

debarshri 5y ago

In mu opinion, enterprise product space is one of the weird space ever. Having seen tons of tools from big data to devops tools, it is all about marketing and more importantly hardcode sales. Another things that I observed is that no body gets fired for buying enterprise products. In the famous saying, "No body gets fired for buying IBM", these days you can replace IBM with any enterprise product company because they are using the same playbook. Another thing I have started observing is that startup who actually start with solving real problem from scaleups and midmarket, has to deploy a playbook like IBM, Oracle to win market share in Enterprise. However, I am truly optimistics about the new trend of consumerization of enterprise as that starts democratizing these purchasing decisions and gives purchasing decision power to the dev themselves.

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runawaybottle 5y ago

Nice, a classic case of corruption. Sometimes, the world really is that simple.

galkk 5y ago

There was recently a Show HN post where CTO from largest customer is cofounder of a product. https://news.ycombinator.com/item?id=26855726 https://news.ycombinator.com/item?id=26855726

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_wldu 5y ago

This has been my experience too. The amount of vendor emails and offers of wine, beer, food, etc. is ridiculous. And the IT conferences (back before covid) were crazy too. Young women dressed in tight clothing working vendor booths trying to draw in customers. It all felt so wrong. I can see how some managers can really be drawn into this sort of lifestyle. They are made to feel very important and are given perks, but they are being played/used, they just don't realize it. I would imagine politicians have the same sort of bribes (except from lobbyists).

softwaredoug 5y ago

I hope the vendors are also charged or punished in some way. They're basically cheating the other vendors that competed for the work fairly out of potential contracts.

borski 5y ago
Netflix was a customer of ours and Mike was a contact, but we never gave anything to him in the way of equity or cash or gifts. But that is only because I had previously worked in intelligence, where if that happened and you got caught, you were not going to be having a very good time. I can imagine plenty of new startups that do not know how enterprise sales are done, looking for an advisor who is high up and has connections, and expect him to disclose the relationship prior to any purchase order being made by Netflix. The startup has no idea about the inner workings, unless it was extremely explicit, but it usually isn't.

chad_strategic 5y ago

This should be a Netflix problem? I'm kind of confused how this is against the law? I can understand tax evasion component and maybe a little wire fraud. (Ignoring the tax evasion issue for a second) They instilled confidence and the ability to award contracts to outside firms for this officer of the company. If company officer hired bad firms eventually he should have been fired for poor performance? Regardless how much kick back they provide him. It sounds like the contract were between two private citizens/entities. Why is the Federal Government doing internal investigation for Netflix? Other than tax fraud, the only victim was Netflix. Not the American public?

dwheeler 5y ago
Bribery is against the law, I presume this is simply the result of a criminal investigation. Also, bribery is insidious. Once some happens, there is considerable pressure for competitors to also engage in bribery to stay in business. So it is important to stop earlier, where you can, because over time it can be very hard to root out. Like murder and theft, it will happen sometimes, but you're trying to discourage it.
chad_strategic 5y ago
Okay, I'm not a lawyer and I'm trying to avoid a little work today etc. Here is a quick search of the term bribery, https://bribery.uslegal.com/solicitation-and-attempted-bribery/ https://bribery.uslegal.com/solicitation-and-attempted-bribe... Everything I run across refers to public official and public trust. I wonder if there are any lawyer out there that can clarify this? I own my own company. I should be able to award any all contracts to who bribes me the most money?
- pwagland 5y ago
  If you _own_ the company 100%, then sure. Since at that point it isn't really a bribe, it's a discount or a service in kind. I am reasonably confident though that this Netflix VP didn't own Netflix. As such he was defrauding the company and/or stockholders and/or owners of the company, since they took money that was rightfully the companies. To a very real extent this is stealing from the company. As a 100% owner of the company it is quite difficult to "steal" from the company, although it is definitely possible to commit tax fraud by pushing stuff through the company instead of through personal accounts. Note that accepting a bribe and not declaring it as some form of income, either personal or business, is probably illegal in your jurisdiction, since at that point it is an undeclared income stream.

projectileboy 5y ago

I guess half a lifetime of slogging away at big orgs has made me cynical, but I can hardly even see how this rates as news. Once worked at a place where we spent a month on an app server bakeoff, selected vendor X. Following week, boss’ boss informs us we’re going with vendor Y. Corrupt? You tell me. Or the time I worked at a Fortune 100 company that had their entire IT outsourced to one of the big consultancies, only to find out that the CIO had a relationship with that consultancy. I could go on. It used to frustrate me more until I finally realized that in a big org, multiple games are being played, and you are probably not at the table of any game being played that matters.

EveYoung 5y ago
This is very much my experience. I went through a couple of very lengthy and detailed RFI processes to select the best vendors, just for the procurement to fail at the final step for some arbitrary reasons with the VP's prefered solution being the only valid alternative.
Excluse 5y ago
If you want to become even more cynical about big orgs, I have to recommend reading The Gervais Principle [1]. [1] https://www.ribbonfarm.com/2009/10/07/the-gervais-principle-or-the-office-according-to-the-office/ https://www.ribbonfarm.com/2009/10/07/the-gervais-principle-...
- projectileboy 5y ago
  Oh, indeed. That book impacted me in a big way. It’s bleak, but I did appreciate that it was the first thing I ever read that actually explained organizations in a way that made sense.

1cvmask 5y ago

There is an interesting anecdote here. There was a saying at Google Apps (now Workplace) of WWMD What Would Mike (Mike Kail) Do when they talked about cloud products adoption by Netflix. The person who said that at the Google Apps summit held at Fort Mason was Clay Bavor who was very close to Marissa Mayer (head of Yahoo at the time). After that Mike Kail left Netflix to Yahoo. Interestingly Mike Kail chose onelogin for Netflix at the time for non-obvious reasons.

caffeine 5y ago

I’m shocked that what he did is considered criminal and worthy of prison. It should be a civil lawsuit between him and Netflix, and the worst they should be able to do is bankrupt him. This guy has not raped anyone, assaulted anyone.. why do we taxpayers need to pay to lock this guy up in a cage? Does no good for anybody.

lainga 5y ago
To encourage the others, maybe?
riku_iki 5y ago
> This guy has not raped anyone, assaulted anyone.. In my mind his crime is much more severe than shoplifting or paying by fake banknotes. > why do we taxpayers need to pay Both, Netflix as a company, and its shareholders are also tax payers, and can expect to be protected from fraud/crimes using taxpayers money.
- caffeine 5y ago
  I guess I don't understand why it's a crime and not just a breach of contract. Imagine if rather than an employee this was a consulting firm that had done the exact same thing (taken payments for signing Netflix up to unnecessary contracts). Nobody would be going to jail, they would just sue the consultancy, which might go out of business.
  - riku_iki 5y ago
    I don't have details in my hands, only pure speculations, but it is likely possible to check on which counts this case has been classified as a criminal offense.
  - mywittyname 5y ago
    Because there are laws prohibiting exactly what he did. It's really that simple. There are laws against doing a thing, he did the thing and got caught. Go to jail, do not cross Go, give back the $500,000.

kevindong 5y ago

The DoJ press release has the actual crimes listed: > Kail was indicted May 1, 2018, of nineteen counts of wire fraud, three counts of mail fraud, and seven counts of money laundering, in violation of 18 U.S.C. §§ 1341 (mail fraud), 1343 (wire fraud), 1346 (honest services fraud), and 1957 (money laundering). https://www.justice.gov/usao-ndca/pr/former-netflix-executive-convicted-receiving-bribes-and-kickbacks-companies-contracting https://www.justice.gov/usao-ndca/pr/former-netflix-executiv...

calkuta 5y ago

Not sure why the people of America need to be spending tax money on sorting this out, or punishing this person. If Netflix wants to allow their business to be run this way, it's fine with me.

yumraj 5y ago

One thing I've always found amusing about US is that bribing a normal person is illegal, as it should be, but bribing a politician/Congressman via campaign funds and lobbying is legal.

schiang 5y ago
Land of the free and home of the brave
max_ 5y ago
Unlike the general public. Politicians have mastered the "legal acrobatics" ... so have a few unknown intelligent criminal's
ativzzz 5y ago
Biggest difference between US and rest of the world is that in the rest of the world it's more accepted to bribe normal people.
balozi 5y ago
Politicians? I'll have you know that we now bribe "activists".
- elkos 5y ago
  Do tell.
oh_sigh 5y ago
But almost all political donations, I would think, are because the entity donating already supports the viewpoint of the elected official. Is it bribing if there isn't a quid pro quo? I can give a congressperson a bunch of money with a note attached saying "Don't vote for bill XYZ", but there is no promise or even acknowledgement from the congressperson that they will do anything at all for you.
- spbaar 5y ago
  there's also the negative pressure. We might see a Telco give 1k to 50 congressmen and think they bribed cheaply, which they did. But it also means if you betray their trust they're willing to spend 50k on your opponent. Also, making sure a plurality of people in the room have some stake in the Telco can prevent uncomfortable conversations from even arising. After all, there are always other issues to work on that won't upset your colleagues

max_ 5y ago

> "To facilitate kickback payments, the evidence at trial showed that Kail created and controlled a limited liability corporation called Unix Mercenary, LLC," the DOJ said. "Established on February 7, 2012, Unix Mercenary had no employees and no business location. Kail was the sole signatory to its bank accounts."

coding123 5y ago

With AWS luckily I think a lot of this goes away. Back in the first dot com boom, we had a CTO or CIO or whatever but he had a side business where he just sold very expensive hardware to the company. He even brought on weird ass shit like AlphaServers/DigitalServers with a special version Windows NT. I mean that's fine since all our stuff was Java, but it was clearly all purchased to personally enrich this guy. OMG, I just looked up his name - this all happened after this company, but he has 13 arrest records from 2006 to 2018 and apparently now he lives in Las Vegas.

nflxsre 5y ago

Followed this one closely as did many in the Silicon Valley IT circle. Court docs showed he was making ~900k per year so this decision was very short sighted. He bought a house with kickbacks for ~800k which was forfeited as part of sentencing and now worth over $2.5M. Prior to getting caught, he had been recruited as CIO of Yahoo pre-acquisition to Verizon. There is no public data on his salary but comparable C level excecs were making millions per year. The previous CIO had a $30M exit package. When Verizon bought Yahoo he could have made millions more in retention and/or exit package. All said, this easily cost him $10M in lost compensation to date and orders of magnitude more given his career trajectory. Albeit he made a poor decision, Mike was an incredibly talented engineer/leader. Shame to see his career end this way.

mring33621 5y ago

At a software role at a small company, I had a bonus tied to the successful integration of a 3rd party workflow tool into our offering. The 3rd party was apparently a friend of our owner. I tested the tool in question and decided that it added no value, so I did not pursue the integration. As a consequence, I did not receive the bonus. My career has suffered several times because I will not rubber stamp management whims. But I just can't.