According to a Securities and Exchange Commission (SEC) complaint filed on Wednesday, the federal government is pursuing charges against three former Netflix Inc. software engineers and two friends who earned over $3 million in net profits by trading on confidential information about Netflix’s subscriber growth.
The SEC’s press release explained that its Market Abuse Unit’s Analysis and Detection Center discovered the trading ring using data analytics tools to identify the traders’ improbably successful stock moves in advance of earnings reports from 2016 to 2019.
The Seattle, Washington-filed civil complaint stated that Sung Mo Jun was the group’s leader while he worked as a software engineer for Netflix and thereafter. According to the complaint, he “accessed material nonpublic information regarding Netflix’s subscriber growth — a key driver of the subscription-based video streaming company’s revenue and its success — in advance of four consecutive Netflix quarterly earnings announcements.”
The information was allegedly used by Sung Mo Jun to repeatedly tip his brother Joon Mo Jun and his close friend, Junwoo Chon. After Sung Mo Jun left Netflix, he obtained confidential Netflix subscriber information from another Netflix insider, defendant Ayden Lee. In addition, a third Netflix employee, Jae Hyeon Bae, reportedly leaked Netflix subscriber information in advance of the company’s July 2019 earnings announcement.
According to the SEC, the defendants tried to cover up the scheme by using encrypted messaging and paying cash kickbacks to Sung Mo Jun. In total, Sung Mo Jun, Joon Jun, and Chon netted over $3.1 million in illicit profits by July 2019, the SEC alleged.
Per the SEC’s press release, the commission seeks to hold the accused accountable for their roles in the insider trading ring. Bae reportedly consented to the entry of a final judgment, which if judicially approved, will bar him from violating the charged antifraud provision and impose a civil penalty of $72,875.
In addition, Sung Mo Jun, Joon Mo Jun, Chon, and Lee have consented to the entry of judgments which, subject to court approval, would permanently enjoin them from violating the aforementioned rule, would apply an officer and director bar as to Sung Mo Jun, and could result in civil penalties. Finally, a parallel action commenced by the U.S. Attorney’s Office for the Western District of Washington filed criminal charges against the four traders.