Three former Netflix employees and two others have been hit with insider trading charges, accused of profiting off of confidential data on subscriber growth at the streaming giant as part of a multimillion-dollar scheme.
The Securities and Exchange Commission said the group generated $3.1million in total earnings by trading on the insider information from three former Netflix software engineers.
'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,' said Erin Schneider, director of the SEC's San Francisco regional office.
Former Netflix employees Sung Mo 'Jay' Jun, Ayden Lee and Jae Hyeon Bae have been charged with insider trading along with two close associates
The SEC said in a complaint the five suspects generated $3.1million in profit by trading on confidential data on subscriber growth at Netflix
Joseph Sansone, of the SEC's Market Abuse Unit, said the group tried to evade detection by using encrypted messaging applications and paying cash kickbacks.
'This case reflects our continued use of sophisticated analytical tools to detect, unravel and halt pernicious insider trading schemes that involve multiple tippers, traders, and market events,' Sansone said in a statement.
According to the SEC's complaint, Sung Mo 'Jay' Jun, 45, was at the center of a long-running scheme to illegally trade on non-public information while employed at Netflix in 2016 and 2017.
Jun revealed this information to his brother, Joon Mo Jun, 45, and a close friend, Junwoo Chon, 49, who both used it to trade in advance of more than a dozen Netflix earnings announcements.
'Joon Jun and Chon profitably traded Netflix securities based on that information, and Chon paid Sung Mo Jun $60,000 in cash from the profits he made by trading in Netflix securities,' according to the 11-page complaint.
After Jun left Netflix in 2017, he obtained confidential Netflix subscriber growth information from another Netflix employee, Ayden Lee, 33, who considered Jun to be his mentor, according to the SEC.
The SEC alleged that Sung Mo Jun's former Netflix colleague Jae Hyeon Bae, 42, another Netflix engineer, provided the insider subscriber growth information via a messaging channel called 'Rage Against the Market' in advance of Netflix's July 2019 earnings announcement.
The SEC said the five men have agreed to a court settlement, which would bar them from further violations and impose civil penalties
'Just prior to Netflix’s quarterly earnings announcement in July 2019, Joon Jun used the Messaging Channel to ask Bae for his opinion about Netflix’s performance,' the complaint states. 'Bae understood this request related to trading in Netflix securities, and told Joon Jun that he should sell Netflix shares.
'Bae did so based on his knowledge of Netflix’s confidential subscriber information, which he understood to be below analyst’s then-current expectations.'
The SEC said the five have agreed to a court settlement, which would bar them from further violations and impose undetermined civil penalties.
Separate criminal charges were filed by the US Attorney's Office against Sung Mo Jun, Joon Jun, Chon and Lee, officials said.
