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Ex-Netflix Employees Accused of $3.1 Million Insider Trading Scheme

August 19, 2021 by Dan McCue
Netflix's longtime Los Gatos, Calif. headquarters. (Photo via Wikimedia Commons)

WASHINGTON — Three former Netflix software engineers and two close associates have been charged with generating over $3 million in profits by trading on confidential information about Netflix’s subscriber growth, the Securities and Exchange Commission announced Wednesday.

According to a complaint filed in federal court in Seattle, former software engineer Sung Mo “Jay” Jun was at the center of a long-running scheme to illegally trade on non-public information concerning the growth in Netflix’s subscriber base. 

The complaint alleges that Jun, while employed at Netflix in 2016 and 2017, repeatedly tipped this information to his brother, Joon Mo Jun, and his close friend, Junwoo Chon, who both used it to trade in advance of multiple Netflix earnings announcements.

Subscriber numbers at Netflix or, more recently, Disney and other companies, have been central to Wall Street’s embrace or rejection of stocks as the entertainment industry has evolved in dramatic new ways in recent years.

After Jun left Netflix in 2017, the complaint says, he obtained confidential Netflix subscriber growth information from another Netflix insider, Ayden Lee. 

Jun allegedly traded himself and tipped his brother and Chon in advance of Netflix earnings announcements from 2017 to 2019. 

The SEC alleges that Jun’s former Netflix colleague Jae Hyeon Bae, another Netflix engineer, tipped Joon Jun based on Netflix’s subscriber growth information in advance of Netflix’s July 2019 earnings announcement.

From 2016 to 2019, Netflix’s stock price more than tripled as the company expanded globally and saw its total subscriber base increase exponentially. 

The SEC said its market abuse unit uncovered the trading ring by using data analysis tools to identify the traders’ suspicious run of success.

“We allege that a Netflix employee and his close associates engaged in a long-running, multimillion dollar scheme to profit from valuable, misappropriated company information,” Erin Schneider, director of the SEC’s San Francisco office, said in a written statement. “The charges announced today hold each of the participants accountable for their roles in the scheme.”

“The defendants allegedly tried to evade detection by using encrypted messaging applications and paying cash kickbacks,” added Joseph Sansone, chief of the SEC’s market abuse unit.

The brothers Jun, Chon, and Lee have consented to the entry of judgments, the SEC said.

If approved by the court, the judgments would permanently enjoin each from violating the charged provisions, with civil penalties to be decided later by the court. 

Bae consented to the entry of a final judgment, also subject to court approval, and imposing a civil penalty of $72,875.

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