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One item seems to have caused a lot of confusion in the comments so I will take a stab at clarifying: It is perfectly legal for Netflix to ask for options or a

One item seems to have caused a lot of confusion in the comments so I will take a stab at clarifying: It is perfectly legal for Netflix to ask for options or any other consideration in exchange for the contract. Companies do this sort of thing frequently. They know that merely signing a large contract with a large firm will increase the value of the contractor. It is not legal for someone working for Netflix to ask for shares in their own personal capacity as individuals. That is what runs afoul of the law.

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nowherebeen 5y ago
> It is not legal for someone working for Netflix to ask for shares in their own personal capacity as individuals. Yup, that's called a kickback, which is illegal.
JumpCrisscross 5y ago
> It is not legal for someone working for Netflix to ask for shares in their own personal capacity as individuals It can be, I think. If Netflix were properly informed of and signed off on the arrangement, it would just be an elaborate compensation mechanism. It would be a lot of paperwork. And they wouldn't approve that.
- tempestn 5y ago
  Yes, and of course they'd then be taxed on that compensation as well.
ryanmcbride 5y ago
thanks for putting it so plainly this cleared up all my questions
menomatter 5y ago
What if you are a majority shareholder for a company? Say mark Zuckerberg asking for shares in companies providing service to Facebook? Is that legal? I'm guessing if it's part of the deal then it's legal.
taurath 5y ago
Was it that the person set up their own Corp to “manage” the relationship, and then took a fee/commission from the contractor in order to gain access to Netflix? That sounds more plausible, and akin to what goes on in the corporate lobbying world where “consultants” functionally sell access to politicians or other VIPs - difference being if you work for the person you’re selling access to it’s illegal (sometimes).
gimmeThaBeet 5y ago
It reminds me of Matt Levine's insider trading, saying(? I don't think it's one of the laws). "It's not about fairness, it's about theft" Which was also applicable to that college admissions thing. The problem is not that people were buying their way into schools. It's that they were paying someone other than the school to do so. The situation as a whole feels a bit dodgy, but the core legal problem is the guy took something that really belonged to Netflix.
- omarhaneef 5y ago
  yes, both of those parallels came to mind as I was writing. You're exactly right, from my perspective, in underscoring the similarity. Once you have that basic model then all the rest of the variations: the company can allow it etc fall out of the model.
AlexanderTheGr8 5y ago
I am confused. Why is the company allowed to do this and not any employee. I mean, isn't this insider trading on the company's part? They could in theory take options, then after the value of the firm increases, they could sell them and pay the money to their execs - isn't this strategy just an elaborate insider trading scheme?
- omarhaneef 5y ago
  Insider trading is illegal because it is theft from the company, not because it is unfair. Hedge funds spend a fortune gaining an advantage that is material and non-public. The key is that they didn't steal it from the company. So if the buying company forced an employee to give them options without the selling companies consent, that would be insider trading. But if the deal is company to company, then there shouldn't be an issue. To quote Matt Levine: This is definitely not legal advice.
- grantc 5y ago
  The companies being asked to include options/warranty/equity usually aren't public, so this wouldn't be insider trading on that basis. Overall, it's better to think of it as Big Co is making an investment in Little Co that it thinks will appreciate as a result of Big Co's business. The cost of that investment is included in the price of whatever Little Co is selling, ergo, there's a large implied discount because Big Co's business is so valuable.

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nowherebeen 5y ago

> It is not legal for someone working for Netflix to ask for shares in their own personal capacity as individuals. Yup, that's called a kickback, which is illegal.

JumpCrisscross 5y ago

> It is not legal for someone working for Netflix to ask for shares in their own personal capacity as individuals It can be, I think. If Netflix were properly informed of and signed off on the arrangement, it would just be an elaborate compensation mechanism. It would be a lot of paperwork. And they wouldn't approve that.

tempestn 5y ago
Yes, and of course they'd then be taxed on that compensation as well.

ryanmcbride 5y ago

thanks for putting it so plainly this cleared up all my questions

menomatter 5y ago

What if you are a majority shareholder for a company? Say mark Zuckerberg asking for shares in companies providing service to Facebook? Is that legal? I'm guessing if it's part of the deal then it's legal.

taurath 5y ago

Was it that the person set up their own Corp to “manage” the relationship, and then took a fee/commission from the contractor in order to gain access to Netflix? That sounds more plausible, and akin to what goes on in the corporate lobbying world where “consultants” functionally sell access to politicians or other VIPs - difference being if you work for the person you’re selling access to it’s illegal (sometimes).

gimmeThaBeet 5y ago

It reminds me of Matt Levine's insider trading, saying(? I don't think it's one of the laws). "It's not about fairness, it's about theft" Which was also applicable to that college admissions thing. The problem is not that people were buying their way into schools. It's that they were paying someone other than the school to do so. The situation as a whole feels a bit dodgy, but the core legal problem is the guy took something that really belonged to Netflix.

omarhaneef 5y ago
yes, both of those parallels came to mind as I was writing. You're exactly right, from my perspective, in underscoring the similarity. Once you have that basic model then all the rest of the variations: the company can allow it etc fall out of the model.

AlexanderTheGr8 5y ago

I am confused. Why is the company allowed to do this and not any employee. I mean, isn't this insider trading on the company's part? They could in theory take options, then after the value of the firm increases, they could sell them and pay the money to their execs - isn't this strategy just an elaborate insider trading scheme?

omarhaneef 5y ago
Insider trading is illegal because it is theft from the company, not because it is unfair. Hedge funds spend a fortune gaining an advantage that is material and non-public. The key is that they didn't steal it from the company. So if the buying company forced an employee to give them options without the selling companies consent, that would be insider trading. But if the deal is company to company, then there shouldn't be an issue. To quote Matt Levine: This is definitely not legal advice.
grantc 5y ago
The companies being asked to include options/warranty/equity usually aren't public, so this wouldn't be insider trading on that basis. Overall, it's better to think of it as Big Co is making an investment in Little Co that it thinks will appreciate as a result of Big Co's business. The cost of that investment is included in the price of whatever Little Co is selling, ergo, there's a large implied discount because Big Co's business is so valuable.