Every time this story comes up, the comments are filled with people proclaiming that kickbacks like this are totally normal and very common.
I can't tell how much of it is random people projecting their cynicism onto the business world, or if it's people who have been part of bribery/kickback schemes themselves trying to normalize the behavior online.
Either way, cases like this should make it clear that the behavior is not a good idea.
I know of people who AWS fully sponsored, including business class intercontinental travel, to attend re:Invent which is essentially a week long holiday party, by virtue of AWS bill.
Every vendor has marketing budget and a decent portion of it goes to keeping their point people at clients happy. You can call it kick back or whatever, it’s a matter of semantics.
So yes it is normal. And no it’s neither cynical and nor have I been involved in. But I’ve seen it happen around me. So I know it’s a routine thing.
> I know of people who AWS fully sponsored, including business class intercontinental travel, to attend re:Invent which is essentially a week long holiday party, by virtue of AWS bill.
Flying people to an AWS conference seems entirely different than funneling money into a single person's bank account.
Yes, I know these conferences have a party-like atmosphere, but it's not done surreptitiously and it's not siphoning money out of the deal into someone's pockets.
Pharmaceutical companies used all inclusive "conferences" to influence doctors to prescribe more opioids. It was effective enough to be banned.
> Accepting a free trip to a drug-company-sponsored conference guided doctors to write more prescriptions of the company’s drugs, a spike of 80 to 190 percent
America is generally good about limiting things to legal graft. I can't offer an elected official money in exchange for a vote, but I can donate millions to entities controlled by the elected officials that are my "friends" and make sure they know about it.
At least in the medical field, conferences only provided the thinnest veneer. Doctors were paid handsome fees to present, which is tantamount to dropping money in their bank account when you compare it to other professions whether people often go to conferences on their own (or company’s) dime.
It's an open conference offered by the largest player in the space vs. a shady deal between a supplier and ONE person of another company, without its employers consent, on top of that.
If I know AWS will fly me out for good times every year (but only so long as I select them for my Big Enterprise Account), I'm more likely to pick them over a vendor that won't do the same, regardless of what's better for the company. Bribery doesn't require currency, it just requires an exchange of value.
And my boss knows that, and it's okay for executives to make corporate decisions for personal reasons. It's not okay for executives to make corporate decisions for personal reasons without acknowledgement, and particularly not with explicit deception. The difference between "my product is better for intangible reasons" and "my product is better because of lies out of teeth is fraud.
Taking personal kickbacks from vendors can be legal, so long as it's reported to your employer (and the IRS). What's not legal is hiding it from your employer because they have policies against it, and every (large) employer does.
The sole owners of large private companies can and do occasionally get personal kickbacks for their business. It rarely makes sense for them, because as owners of large private corporations they have better way of extracting cash from those companies (like literally paying themselves a salary or bonus). Totally legal, though.
A marketing scheme intended to attract new customers is well within what's morally accepted. Also, it's not like every guy that goes to AWS re:Invent comes back with a brand new luxury car. What they get is just some good food and drinks, while they're there, and that's just providing good hospitality for your guests. It also does not happen behind closed doors, and most of the people that go are already existing customers.
vs.
Corrupt company approaches corrupt employee off the record to offer cash in exchange of contracts that would not get assigned to them otherwise (because if they were, they wouldn't resort to this).
There are thresholds elsewhere. For example, a civil servant can accept a gift, up to a very small amount, from a vendor without being an ethics violation.
But there’s proportional impact as well. The person who got the AWS treatment might be responsible for $50K of AWS budget. And the person at Netflix is responsible for millions of dollars of budgets, royalties and other schemes.
Hmm, even at my most cynical I would say the difference is the free conference is a much smaller (and thus presumably less effective) bribe. Giving away tickets to a conference which they sell the tickets for costs AMZN very little (sure, there are costs associated with putting it on, but those would have had to be paid anyhow, adding an attendee or two won't change much). So it's a few grand worth of airplane tickets vs. $700K...
This situation is like lobbying: is it the people's voice in fungible action or is it mega-corporations funneling money directly into politicians pockets?
The answer is probably both, and any attempt to litigate it will probably be abused and lead to even more issues.
That is not really close to what these charges are.
Kail received money and stock directly, not as part of a business or sales exchange. Being flown to a conference where you'll be told the merits of your potential purchase is obviously very different.
Even if Kail had innocently owned stock in a company being evaluated it likely would have been a conflict of interest and they should have stepped away from the evaluation. This happens all the time. As a CEO I can tell you I've had people stop a call partway through because they realize they're conflicted out of the discussion and I'll have to talk to a neutral party.
While normal business travel can have a bit of a boondoggle aspect to it (and your example would probably not be OK for US government employees), it's not generally considered a personal payment or gift as a kickback would be. So, no, it's not the same thing in the manner that paying for someone's personal vacation week on a tropical island would be.
Companies pick up at least some expenses for customers, partners, journalists, analysts, etc. to attend business events all the time. And everyone involved is very clear about the difference between that and handing them a stack of bills under the table.
(And speaking for myself, I can think of a lot of places that I'd rather be than Las Vegas for re:Invent.)
There is no magic loophole by giving people stuff rather than paying them money directly. In tax law this is just called a non-cash benefit and it is taxable all the same. I'm sure the people writing corruption guidelines had the same insight.
The "loophole" is that, for gifts of more than a token amount, it has to be a legitimate business expense--whoever is picking up the bill. Waiving a conference fee and covering some or all of the travel expenses to a conference, would widely be considered legitimate business expenses. Normally these would be picked up by my company these days if I had a business reason to attend an event and I need to pay for registration and travel. But conference organizers routinely waive at least the conference fees for journalists, analysts, speakers, and possibly others they want to attend.
Working in finance, I have to report any gift above €50. This includes when I would receive a gift or lottery for a training, a conference, etc. So for us it is at least treated like a potential personal payment.
At one point in my career I was one of those people. Not AWS but I went to many a conference on the vendor's dime. Ran up some impressive bar and restaurant tabs while there. Also on their dime. Some vendors didn't have large conferences and would fly me to a nice resort somewhere for a few days which included some product info sessions. Usually at that point the people trying to keep your business and those trying to get your business are all doing the same thing so it is all ineffective in influencing your choices. In fact during that time I would say a majority of the vendors I was involved in selecting actually did neither.
At none of them was there any kind quid pro quo even hinted at. My employer knew about and approved all trips beforehand.
This is way different than what happened here. Direct payments to an employee for award of work without knowledge of their employer.
Kickbacks are a personal payment, an illegal personal incentive to a business transaction.
This guy was soliciting cash and stocks! A crummy sponsored trip to a conference would have been arranged through the employer, and is not the same thing.
It's all fun and games until you swap AWS for Purdue Pharma and point people for doctors and suddenly there is an opium addiction epidemic. This shit has real consequences.
I guess at least the courts are there to fix things... except when it's also okay for members of the highest court of the land to get sponsored golf/hunting trips, and even be caught dead in one...
I don't think the argument "I've seen it happen around me" means that it is necessarily routine or common throughout society. If I'm a basketball player and most of the people around me can dunk a basketball, while it may be common in my circle, it certainly is not common throughout the American or global population.
I think in the UK they have laws which basically say that bribery is defined by employers. It is bribery if employers don't approve the payments/gifts as part of the job. I think it is similar in the US. People in your examples probably got the approval, but this Netflix executive definitely didn't according to the article.
Things like that - e.g. conferences, paid travel, etc - are common. But I think it's different from a manager charging kickbacks for awarding an IT contract, and on only by pure semantic.
or not trying to normalize but pointing out that its already normalized to the point that you can’t be an effective employee due to competition with people winning deal flow via kickbacks
The actions in question occurred almost 10 years ago, how many people lost commissions and bonuses and promotions and jobs and relationships by trying to play fair?
acknowledging this isn’t being an apologist for it or condoning it
even the DOJ indictment only acknowledges Netflix shareholders being deprived of tiny tiny amounts of profits, not everyone at all the other companies in the wake over the last decade, which is kind of a slap in the face and like a joke that public servants actually bothered, using that rationale.
so with that reality the incentive is still there to kickback and relax
Yes, this is effectively a race to the bottom situation and is a form of corruption of the rule of law. In today's world, we tend to have a culture of "letting things slide" and all this does is gradually normalize and escalate breaking the law over a long period of time.
Cost of wage theft by employers is 3 times the total cost of burglaries. There's a few articles about wage theft over the year and probably 100 a day about burglaries. White collar crime does not pay.
Not sure about this source, but [0] gives some insight into this. Wage theft is typically defined as legally earned wages than an employer refuses to give to the employee (think tips not being given appropriately, overtime hours not compensated for as an hourly employee, etc.)
I'm assuming this is regarding Happy Birthday being copyrighted? If so, you should know that that copyright was declared invalid, and Happy Birthday is now public domain.
Also, copyright infringement is only a crime if it is done for financial gain. Otherwise, it's a civil issue. You won't get jailed for pirating a movie. You CAN get jailed for SELLING pirated copies of a movie.
> Ever played a poker game for small stakes at home? Crime.
I heard this isn't true unless the host takes a rake, though this might depend on the state.
It’s more about the general erosion of the rule of law. It forces you to weigh “how wrong is this” versus “will I get caught”. We make these choices every day, and after a while, it moves your own morality (especially when faceless, abusive corporate structures are the victim).
When unchecked, corruption becomes a local maximum. The corporate version of “plata o plumbo” (silver or lead, the choice Pablo Escobar gave government officials in Columbia) is an unspoken rule at a lot of “cash cow” companies or mature industries; they won’t trust you unless they can hold something like this over your head. Step out of line and they prosecute you, or if you don’t play ball your metrics will look like shit and you’ll get fired for poor performance.
My guess is that this guy just made some powerful enemies.
I'm responding directly to the comment above, asking which crimes they might have unintentionally committed.
You'll notice I make no comment about the kickbacks here.
And yes - the whole POINT is that none of these are all that intuitive, and they vary by region. So the odds are very good that you're violating some city/town/state ordinance fairly often, but the lack of enforcement means you never consider it.
For those questioning the online taxes - if you are in California you absolutely have to pay taxes on these purchases. You can pay actual taxes or an "estimate" based on your income if you believe you have normal levels of purchasing.
From [1]:
Generally, if sales tax would apply when you buy physical merchandise in California, use tax applies when you make a similar purchase without tax from a business located outside the state. For these purchases, the buyer is required to pay use tax separately.
Only after 2016. Before that you would have been on the hook for ~$700 per performance to warner media group.
Admittedly, in most "Private" settings, you'd be fine. The most common place to get flagged was in a restaurant where the waiters sing to you.
> you don't need to report things you buy online on your taxes
Ooof, I got some bad news for you, buddy. You ABSOLUTELY DO need to report any online purchase that does not charge you sales tax at time of payment. Most retailers will now do this (primarily because Amazon abused the shit out of this to give customers an additional ~10% off, and the IRS started handing out fines) but for things like: Craigslist, Ebay, Alibaba, etc - You better be reporting it, you little criminal you.
He asked which laws he might have unintentionally broken. Unless he's an incredibly literate 6 year old... I suspect he's old enough to have sung happy birthday before 2016, which would have been breaking the law.
The original post also didn't specify that you picked an online vendor that's calculating this tax for you... And in some places, you're still supposed to be reporting it! Fun times!
>you don't need to report things you buy online on your taxes
In at least some states (e.g. Massachusetts) you are indeed supposed to report out of state purchases brought into the state whether or not the company selling to you collected the state sales tax or not. (Larger companies shipping to you now have to collect.)
The wrong people are being prosecuted, they are going after the most well connected node in a graph only when noticed.
It should not be a criminal charge.
And the civil charge likely needs to be levied elsewhere, and let the individual perpetrator be embroiled in private litigation with the employer and associated companies.
I see the same absurdity in the FCPA. Americans are sent into to foreign and already corrupt markets to land business, but if they do anything competitive in that corrupt market, then they … have to pay a kickback to the United States too as punishment for paying kickbacks?
This guy was able to extract kickbacks from nine different vendors. So in fact, it looks quite a few companies have systems in place to "facilitate" deals if needed.
This was pay to play and the play was not delivered. Hence the blowback from upset "victims" coming after their money.
Kickbacks are common sorry man. Its harder in public sector because of the eyeson you but there are ways around it. You just have to be in the right position.
Kickbacks are almost never posecuted because both sidea get what they want.
Yes and no. As a thought exercise it can be thought of as two parties even if you have to pay off more than one entity in the real world.
Its part of the reason gov projects are almost always over budget and behind schedule. The only way to prevent corruption is to make the corruption more expensive than just paying upfront. However by putting these endless bureaucracies in place it also raises the total cost of the project.
Those of us not in elite circles have a little trouble getting worked up over the difference between something that looks like it's scummy, immoral cheating, but is legal, or the same, but illegal.
Same played out with the college entrance scandal. "Bribery is great and we love it a bunch—unless you do it wrong because you're not rich enough to do it right, then it's a big ol' no-no" is the message a great many received from that one.
The first time I heard someone talk about a "commission" in this context, I was totally confused -- "I thought salespeople got commissions, not customers?" -- until it all snapped into focus and I was like: "Oh." And from the way they talked, this was normal for B2B sales? So then I look at some decisions that have been made in companies where I've worked, and I wonder...
I'm always reminded that HN is global, and sometimes people are representing what's normal or common where they're sitting, not necessarily everywhere.
I appreciate you pointing this out, I easily forget this.
I think the extreme version of this is me taking something that is routine or normal for me individually and assuming all other humans must do it. Or taking something that my spouse, boss, or parent did and assume all spouses, bosses, or parents must do it. Not necessarily.
The behaviour of many execs I have worked with would be explained well by this sort of arrangement, but it could equally have been a mix of stubbornness and having no clue. It's politer to assume it was corruption.
I’m sure every employee has to read their company’s code of conduct and those are quite unambiguous about what’s allowed and what isn’t and that which isn’t is serious and will get you fired --no company wants to have to mobilize lawyers and waste hundreds of professionally billed hours for an employee violating regulations.
what I don't understand is none of the companies that bribed him had criminal charges levied against them. doesn't this reek of companies doing bad ok, smash the ants?
Oh please. Ever watched Mad Men, or any other tv/film that shows the wining and dining of prospective clients by a sales person/team? Every time a sales person spends money on a prospective client is written off as an expense, so the gov't is pretty much condoning it.
There are tons of stories of big pharma sending doctors to lavish resorts in the guise of a "conference". Ever heard of payola? The music business has been based on bribes. Why would you think of the film business being different? Hell, the states are involved just as much with tax incentives to entice productions to use their state/cities as location for that production.
You're being quite cynical trying to wrap any person with knowledge of these payout schemes as being involved/complicit.
I'm always amazed at how people around me really think this way. Yes, every high school chemistry teacher is a meth overlord, and you can just walk into Bank of Spain and rob it, haven't you seen it? facepalm
You're sarcasm is so good, I can't tell which direction it is aimed. That's pretty impressive.
Yes, I know my chem101 teacher wasn't Heisenberg. Yes, I understand how TV is fiction. However, are you really so thick to not realize that fiction is based on reality. Fiction isn't written in a vaccum, and the most interesting plots are typically based on some real situation the author has experienced, seen/heard, etc. Yes, it is dramatized to make the really boring parts interesting so people tune in, but come on. If you don't think a Don Draper/Walter White type existed as a single person or an amalgamation of multiple people then you just have your head in the sand.
Using modern TV/Film/media in examples isn't a cluelessness on the speaker's part. It's used as something much more relatable than an esoteric story that you might or might not be able to provide a link to.
> I can't tell how much of it is random people projecting their cynicism onto the business world, or if it's people who have been part of bribery/kickback schemes themselves trying to normalize the behavior online.
I think most people don't understand the difference between an agreed to agency fee/reseller margin deal, a direct incentive program, and someone just taking money, on the side. Direct Incentives (also call spiffs) are where a supplier pays a bonus directly to the person who sold the deal. These are always agreed to between the companies and reported. Without permission of the employer, they could be very illegal or a major violation of your employment contract.
>I can't tell how much of it is random people projecting their cynicism onto the business world, or if it's people who have been part of bribery/kickback schemes themselves trying to normalize the behavior online.
Or people who actually know about those things, having worked in/with/studied the various industries, without having "been part of bribery/kickback schemes themselves", and have seen them to be fairly widespread - that's a missing third option.
I added this, because the above comment is still that of the proverbial starry-eyed kid arriving with the bus to L.A. from Nebraska, and paints a false dichotomy that ends up with the same conclusion ("this can't possibly be widespread"):
(a) it's either cynical people (so this isn't widespread, it's just their cynicism that thinks so)
(b) or it's crooks looking to normalize their behavior (so this isn't widespread, it's just isolated "bad-apple" cases justyfing themselves)
Even merely studying different industries, you'll find such scandals (and worse) in some of the biggest companies on Earth, with upper management knowledge and encourangement, collaboration with local governments, cover-up and diplomatic protection from the company's own government, and so on.
Just an example, from one of the biggest companies in the world, with tons of different executives and branches involved, and with different corruption cases all around the world:
"As the 2000s decade progressed, a different breed of corporate scandals began to surface. For example,
companies such as ABB Limited, Daimler Chrysler, El Paso Corporation, General Electric, Halliburton, Lee
Dynamics, Lucent Technologies, and Siemens AG were found guilty of violating U.S. law and consequently, also
rattled shareholders’ trust (Cascini & DelFavero, 2008, p.27). The named businesses were found guilty of
committing bribery (...)"
And we haven't even got into weapons, aviation, construction, and medicine industry bribes (industries which are to bribes what Xerox PARC was for UI innovations!)
I will state this isn’t normal for large enterprises, at least at that scale. Most software vendors are happy to invite buyers to Warriors games, which is a lot cheaper than the 0.25% dilution. I’ve even seen folks recuse themselves from recommending prior employers because they still had shares.
I think the problem lands somewhere between “widespread corruption” and “never.”
Salespeople can hit their quotas without kickbacks.
What I do see from time to time is this happening “fully disclosed”’at the very senior level. A CEO of a major database company convinces the board to buy a firm that he has an interest in. A CEO “allows” a company to rent out his property for corporate housing. These are fully disclosed, and therefore considered acceptable.
>I will state this isn’t normal for large enterprises, at least at that scale. Most software vendors are happy to invite buyers to Warriors games, which is a lot cheaper than the 0.25% dilution.
Salesforce or GitHub selling seats to some random company sure don't.
Large software vendors like Microsoft, Siemens (their software dept), IBM, and more, have routinely bribed all around the world to win government contracts.
I guess for me it comes down to numbers. What does "fairly widespread" equate to? 50% of American corporate executives do this? 10%? 1%? Or are we talking about global executives at firms that net over $1B revenue per year?
It may seem nitpicky and yet I think the context and statistics matter—without it, I think we can fall into very binary discussions of people being corrupt or clean, bad or good.
> I guess for me it comes down to numbers. What does "fairly widespread" equate to?
Exactly. It's easy to search the internet internet for 10+ news stories about just about any bad behavior over the past decade, but that doesn't make it the norm.
>I can't tell how much of it is random people projecting their cynicism onto the business world
Is this on HN? Because I rarely sees it. Most people working in Tech and specifically software development are so abstracted from these type of things they think they are extremely rare.
It is still a common thing though. At least it happens much more often than most people thought. And it is not cynicism but personal experience.
If you’re on a government contract, it’s quite likely you’re exposed to all sorts of opportunities for wrong doing, even as a technical worker.
Try talking to a retired government worker for juicy stories some time (there are three generations of tech workers in my family, and all of us have done government work or contracting since the 1960s).
This is why government workers and contractors have to take so much anti-corruption training (I’ve never been subject to this in any purely private sector jobs).
> More to the point, virtually every senior member of Presidential administrations do this almost blatantly, big-D or big-R, doesn't matter.
This is the sort of cynical thing people say because other people say it. Spiro Agnew did it, sure. That was a while ago. What are your other examples? Since virtually every member does this, you should have hundreds. And remember you need a roughly balanced count of Republicans and Democrats. Obama was in office for 8 years. That should be quite a pile.
Pure cynicism is an argument against rules and accountability generally.
Well, do you think our politicians aren't in the same position of the esteemed Michael Kail, VP of Netflix IT Operations? People in power are going to be hit with sex, money, or power. Money, it seems, is just the easiest attack vector.
A rumor is that Reed Hastings made it his personal mission to ensure that Kail gets the right punishment for he breach the trust of freedom-and-responsibility that Netflix gave to its employees.
My question is how this could lead to jail time? I mean, its against policy, the employer can sue for damages, fire the person, etc. But to throw someone in jail for breaking essentially a corporate policy seems really off.
It's corporate corruption and this type of behavior prevents companies from competing fairly. It's bigger than "corporate policy". That's like saying "theft" is against corporate policy, so when I embezzled $10K I should just get fired instead of jailed.
Netflix is a publicly traded company. They have a fiduciary responsibility to the shareholder to increase shareholder value by always selecting the best interest of the shareholders. It is way beyond a corporate policy. It is stealing shareholder value.
Oh no, not the shareholder value! How high up on the org chart do employees have a direct fiduciary duty to the shareholders? Presumably there is some breakpoint below which is becomes mere incompetence.
> But to throw someone in jail for breaking essentially a corporate policy seems really off.
It "seems off" because that obviously isn't what happened.
> Jury Earlier Returned 28 Guilty Verdicts Convicting Michael Kail of Fraud and Money Laundering for Pay-To-Play Payments from Tech Startups Seeking Netflix Contracts
These are crimes, not mere violations of corporate policy.
> “Bribery and kickbacks are pernicious crimes that stifle Silicon Valley’s culture of competitive innovation,” said Acting United States Attorney Stephanie M. Hinds. “Michael Kail used his highly compensated Netflix position to siphon cash and valuable stock options from his tech vendors, the same vendors whose Netflix contracts he signed and whose technologies he pushed his teams to use. Such crimes come with a cost, as reflected by the prison sentence that Kail will now serve.”
So the person took bribes and hurt other tech vendors and the corporation. Sure. But suppose you hurt the organization and partners by being incompetent at your work. Or having bad judgement, or being lazy, or a million other things. Would it be okay to send those people to prison?
"Pay-to-Play" isn't illegal. I don't even know what it is. Coke pays to have their beverage in AMC theaters. Is that pay to play? Is Pepsi more worthy of that slot? "Money Laundering" is incredibly broad and can be applied to a lot of things.
Mate, they got him for numerous counts of wire fraud, money laundering, and more. These are all crimes, not mere violations of corporate policy. If you can't square your understanding of the law with what happened, it's your deficient understanding of the law that is to blame.
Your point, as I understand it: you disagree with a jury's conclusion in one, high-profile case, therefore the entire justice system isn't necessary or there should be no consequences for white-collar crime.
Or perhaps more charitably: you've become disillusioned about the judicial process in general, seeing a lot of results you consider unjust, therefore the entire justice system isn't necessary or there should be no consequences for white-collar crime.
Neither is even a bit convincing. If one can significantly increase their personal wealth at mere risk of being fired, then the least honest people will accumulate all the wealth and power.
That kind of comparison is meaningless and useless. The question should not be, "Should we criminalize fraud if people disagree about the results of this one specific unrelated case?"
The question should be, "Should we criminalize fraud and if so what are the optimal penalties for disincentivizing new and repeat activity?"
It’s human nature to scratch each other’s backs. It’s happening, will continue to happen, and there’s little which can be done.
It’s always a game of cat and mouse. Legalizing small time bribery where it can be done out in the open would probably be far more effective then advocating for things like increased workplace surveillance.
Thinking commerce can happen without corruption or kickbacks is just naive.
The average American may earn something like 125k in 30 months. 700k in exchange for a small chance of 30 months in jail probably sounds like a good deal to a purely rational and amoral person.
The average executive in a high money industry like film is clearing a lot more than that and is looking for any and all advantages that come from the position. It can come in any form from having a company car to getting an executive producer credit on some show they actually didn't produce. You're naive if you actually think this doesn't happen everyday in the film industry / culture. That's just business and it's part of the free market. I don't see how any of this is any business of the feds.
Except that he has to return the 700k, Pay additional fine of 50K , go to Jail for 30 months and not to mention that his reputation is ruined and he will never get another high profile white collar job. Yea, totally worth it.
In retrospect yes. If you can prove the probability he would be caught is low enough, then you could probably show it was worth the risk. I don't know what that probability is, but based on how rare executives are actually nabbed over this sort of thing I'm not so sure we can say with certainty he made a bad bet.
If 700k - p_caught * (value of 30 months of your life + 700k + reputation + fines) is greater than 0, a rational and amoral person should execute the trade.
Am I reading your comment correctly? GP says that, over 30 months, the average American makes $125k. Given a $68k per year average that you provide, that's $170k after 30 months, which is even more than GP estimated. Even if the average were $40k/year, that's still $100k after 30 months.
I used 12 months in a year and went up to 20 months, too tired to realize that they were talking about 2.5 years instead of 1.5. Original comment edited, my mistake, let's all go back to sleep now.
I created a company around an Open Source Electronic Medical Records system I also created, ClearHealth. It took me a couple of years to realize we were losing deals for health systems not because our system was bad (it was great), not because our sales teams were bad (they were great) but because we weren't engaging in kick-backs and outright bribery. This has become such a normalized part of business at institutions that it is extremely hard to be competitive if you don't do it.
After losing some deals that just seemed like there was no credible way we could lose, better "product", better price, better team, etc. You start asking hard questions about all the people involved and eventually someome will confidentially explain what happened. Especially people who actually need to work with the worse vendor that just got selected.
If you read through the settlement I linked ("The settlement also resolves allegations that ECW paid kickbacks to certain customers in exchange for promoting its product.") and other documentation regarding that case you can find details of several situations. I am singling out ECW there because that settlement exists. You would have to be pretty naive to think they were the only vendor engaged in that type of behavior and that the recipients of kick backs were only receiving kick backs from them alone.
Thanks for answering, I always wonder how people find out things like this. For me it's like racism, how will you ever know the real motivation? I guess sometimes you will get some discreet feedback.
i'm far away from b2b sales so this is pretty shocking and thanks for sharing, but couldn't "kickbacks to certain customers in exchange for promoting its product" be something like "leave us a testimonial and we'll cut you a deal"? Is it legal to, say, pay for references and testimonials?
If you consult the details you will find the allegations are of direct payments, trips, and other hard assets up to and including duffle bags full of cash.
This is not an uncommon practice in the Silicon Valley. Startup wants to business with Big Co., invites Big Co.'s decision maker (VP Marketing, CIO, CTO, CFO) to join the "board of advisors". Then startups pays for expenses, travel and grant "stock options" to Big Co. senior manager.
Understand that ANY product has a "side" price tag, paid by granting options or "payment for expenses" to the senior individual.
Another way to look at that. Ask ANY member of your board of advisors to disclose ANY conflict of interest.
If StartUp sells product/services/SaaS to BigCo. then BigCo. "advisor" should disclose ANY payment, direct or indirect, travel or non-travel, and ANY stock options.
This is what had to be done with the large drug companies, forcing them to disclose payments to providers/medical doctors who had the authority to buy drugs. Full disclosure + penalties for lack of disclosure ---> that was the end for the drug sales rep who were doling "educational conference tickets, all expenses paid for you and your spouse, ALL expenses paid, and of course compensation for your time". Of course said conference had to happen in Tahiti, San Francisco, Seychelles, etc...
I'm glad to see the verdict and a relatively severe sentence handed down (I expected 6-12 months).
What Mike did was indeed unethical and fraudulent. It's also extremely foolish and shows poor judgment on his part -- his role at Netflix was to lead the organization to identify and implement the best solutions for the company and its customers. Instead he saw the opportunity for short-term personal gain at the company's expense, and by doing so he jeopardized his lifetime earnings potential that would have been many times greater. I hope this sends a message to anyone else in his position that there can be consequences.
I've been responsible for tens to hundreds of millions in annual expenditure, and to even have the appearance of vendor favoritism (let alone kickbacks, bribes, payoffs) is anathema to me. I have vendors that I like to work with because they do good work and they help me to make things happen, but even my favorite vendor is evaluated and earns the business on the merits every single time.
I have declined seemingly innocent gifts from vendors (and notified my management). I always turn down things like sports tickets and paid trips. I do let vendors pay for the occasional lunch, but only up to a point that I feel comfortable. Maintaining my independence is absolutely key to my role and my career.
I've also worked at places where even a paid for lunch is not acceptable. That won't influence my decision-making one iota, but if those are the rules then I follow them.
Not everyone does that, but I don't know anyone in the industry who thinks Mike's behavior is OK. Anyone working for me who made unjustifiable decisions with vendor agreements would make me re-evaluate their position -- and if I found a pattern along the lines of Mike's behavior, they would be dismissed and sued just like him.
This kind of full disclosure is terribly important to build and maintain trust in an organization. I've even go so far as to disclose my investment portfolio to the CFO and clarify the purchasing decisions when there is overlap. Back in the day my budget was in the ten's of millions and it wasn't uncommon to make a $1m purchase of servers and storage. The moral ambiguity of accepting something in turn for making a buying decision is really beyond the pale. Thank you for your great post.
You make a great point: there are other potential sources of conflicts besides vendor kickbacks, and they all need to be handled with care.
It isn't always feasible, but when I'm faced with a decision where my judgment may be (or at least appear) compromised, I like to assemble the details and let my team or my management make the call. Nothing in life happens 100% without bias, but I think this helps to build trust in a similar way to your disclosing of financial ties.
The industry is quite small in a lot of ways, and reputation is everything. If people sense that you aren't trustworthy, you may still be able to find work -- but everything will get harder.
I'm glad to hear that you see value in professional trust as well and take the steps to earn it and keep it.
Is what they did illegal too? Presumably with zero chance of being charged. I haven't fully groked the limits of 'fraud' and 'money laundering' here in the US. These typically feel like they should be civil breach of fiduciary duty type cases.
Evidence at trial showed that several more companies paid Kail. Neither Netenrich, Vistara, nor any of the other companies were charged with criminal conduct. Only Kail was charged with devising the criminal scheme that defrauded Netflix.
Since Kail was charged for wire fraud and mail fraud (deceiving Netflix about his personal compensation and conflicts of interest), it seems possible that the companies could be charged with "conspiracy to commit wire fraud" for colluding with him? It's hard for me to say exactly how easy this would be to prove—I think it's pretty clear to say that most companies / people should know that paying someone on the side for inside information on competitors or paying the VP a % of all contracts is an act to defraud Netflix. So the "meeting of the minds" to commit fraud is there, and the actual fraud is there (because one of the participants in the conspiracy committed it). But obviously this stuff is complicated and i'm not a lawyer. Also, the companies themselves would probably be pretty hard to charge, rather than the individual sales reps who signed off on the payments.
IANAL, but in general: yes. Someone should be on the hook for paying bribes as well as for receiving them. At least, that's what every training on corporate bribery I've ever seen asserts.
Not just should, they usually are. But I would also assume prosecutors use discretion to decide whether to charge them or not based on whether they do it as a pattern, whether they’re in their jurisdiction and whether they were coerced. I read this to mean one or multiple of it didn’t hold.
I was there and saw some of this during my time at Netflix.
I've also been in the industry long enough to get my own sense of what is / what is not reasonable.
The first thing, Netflix wise, is to understand their culture deck at the time. One of the main things was "Act in Netflix's best interest". That basically described their philosophy of how employees should act.
So, when signing a contract, where you get a 10% kickback, (eg the company pays $200/hour and you get $20 as a commission, its better to have the company pay $180.)
Also, signing contracts that he was enriched by - stock, kickbacks etc. (he received what is now worth: $862,500 of sumologic, and $2,167,700 of netskope - trial document #276
He also signed contracts that were never deployed, had a long support lifetime, or didnt meet the companies needs - eg: Numerify, and docurated - trial document # 288
In some cases, I personally experienced us having to use tools that Mike had signed for that were not right for the job. Eg: Sumologic at the time was a horrendous product. It certainly was not a realtime logging system. Realtime was up to 15 minutes delayed. If you wanted realtime, it was all about syslog. I brought this up, and was told that we were using the product because of Mike, even though it clearly did not help our problems. Grep on the unix server was considerably faster and more up to date, (but it wouldnt have got Mike $2M of stock).
Mike also had me meet with him and various vendors who were pitching some fly-by-night ideas. In a normal world, I'd say they were very early startup ideas that weren't a match for our needs. Now, I'm wondering if these were meetings where Mike was looking to get an "advisory" angle.
In summary, I've been to coffee, dinners, very nice meals etc. with vendors. I've had them invite me places for meetings, and I've gone with my companies permission and understanding. I've had non-compensated advisory positions. The difference though, is my company was aware of it, and I did not receive stock or engineer contracts such that I received kickbacks. Thats where the line was, and thats why he's going to jail.
What this exec did was very illegal, but anyone in the startup scene would know that things like this are very common, but probably on a smaller scale.
Maybe there are no wads of cash changing hands, but I've personally seen contracts being earned less due to the feature set, but more because the startup got introduced to some C level and them applying downward pressure to choose that startup during the vetting process.
It's kinda noticeable when you're on a call with a big company's tech team and they sound defeated when talking about the success criteria and stuff
The actual title is "Former Netflix Executive Sentenced To 30 Months For Bribes And Kickbacks From Netflix Vendors
". Mike left Netflix in 2014 and joined Yahoo and CIO for a moment before this all came out and Meyer put him on leave.
He was a netflix executive when he took the bribe, so that seems completely acceptable: "Michael Kail used his highly compensated Netflix position to siphon cash and valuable stock options from his tech vendors,"
I think 'Former' is a key word here, showing Netflix is no longer affiliated with him. And "700K Bribes" reads like the number of bribes, not dollars collected
The two multimillionaires I know (one sold his company to JPMC, the other, to Google) aren't driven primarily by money. They have a genuine interest in what they do (securitizing carbon offsets, and designing analog circuits, respectively).
They're what you'd call "good guys".
They wouldn't be caught dead in that crazy kickback scheme that was described.
I know this is a small sample set, but what I've come away with is that rich people are like you and me, except they happen to be rich.
Very well-compensated people apparently can get sufficiently unmoored from a moral compass that they 1.) think the rules don't apply to them and 2.) just don't stop to consider that morals/ethics aside what they're doing is a really dumb potentially life-ruining risk.
Can someone with more legal expertise explain why he is charged with wire fraud and not "accepting a kickback"?
Is it legal to take bribes if you do it in a way that doesn't create wire fraud? Was the crime taking kickbacks or was the crime being paid in a certain way (i.e. the LLC he created)?
Specific anti-kickback laws only exist at the federal level for specific industries within federal purview like healthcare (through departments like CMS). Wire fraud is more general but is an avenue for the justice department to prosecute behavior like this (the crime is not specific to orchestrating a kickback scheme but defrauding his employer for personal gain).
I had a boss at a major university who might've done this had he thought he could get away with it. Instead, he kept his greed down to an "acceptable" level of theft of university property for personal use and exploitation of vendor's client entertainment allowances.
I know anecdotally a lot of US based Indian Outsourcing companies, TCS, Infosys, Mahindra, HCL bribe the mid-senior IT executives by buying them offshore properties under LLCs. If you look at Avis, Disney and other corps, the top level IT execs are bribed to the gills by these companies.
Maybe they don't leave a paper trail a mile wide and deep, unlike this clown?
> Two days before Unix Mercenary was registered with the California Secretary of State, Kail signed a Sales Representative Agreement to receive cash payments from Netenrich, Inc., amounting to 12% of any billings ...
This is not to excuse the criminality, but rather to suggest an unhappy likelihood that the great bulk of graft flows by more sophisticated arrangements.
Genuine question here. Who took him to court? Did I understand well it was a public institution/Irs? There seems to be no mention of netflix (company) being involved in the trial on the accusation side.
The fact that "this is common" does not excuse the fact that it is wrong and unethical. This is similar to how Intel paid companies to not use AMD processors. It is anti-competitive behavior.
That makes sense. I just figured that an official release from a government site (I checked the URL after I stumbled on this sentence a couple times to make sure it wasn't some random law blog, but an official .gov site) would be a bit better proof-read, so didn't want to assume. Also, I probably still need another 30 minutes for the coffee this morning to fully suffuse into my being so I can function like a normal person.
Also this, with directionality of "bribe" reversed:
>Mr. Kail chose which IT contracts were awarded by Netflix according to how he was able to bribe those companies to provide him with financial compensation
I worked at a company where the CIO routinely bought technologies for us to use, but we never did as they were mostly pointless to our business. He also always wrote articles for the companies bragging how much the software improved our business. One time one company sent a PR person to interview us and they were astonished to find out we never used it. Long after I left he was perp walked out of the company by a new CEO; turned out they company finally hired someone with more tech knowledge than this guy. Of course he had been taking kickbacks but knew just enough to convince the other execs we "needed" it.
A week later he had another CIO job. I think he was fired from that one too.
No idea if he was ever put on trial, probably the case was too embarrassing to pursue.
I don't even allow companies to invite me for dinner or lunch, except if we do it in a way where I pay one time and the business contact pays the other time out of our own pockets.
It is important to me that I am able to make the best possible decision at any moment. I don't want someone else veing in a position where I can ve forced to do something I don't want to do.
One thing that is interesting about this is not that these vendors made the initial suggestion of a kickback. Instead Kail said he would get them in as a vendor if they made him some important person at their company. So the idea of the kickback wasn't from the vendor.
When I read things like this, I can't help but think of how no one went to jail after the 2008 financial crisis. $700k from a group of private companies? WHO CARES? Congress just said insider trading is ok when they do it, can we maybe go after some of that next time?
So did they hold him in prison from 2014 to 2021? What did he do during those years? There should be some law about time waiting for trial counting toward the sentence, which would also incentivize judges to work more quickly.
I know this is just an off-the-cuff quip, but the real answer is probably zero. He's minimum security. He's going to have very little problems like this, even as a rich white guy.
When I was locked up, I was in Max with mostly murderers. I got tricked out of a $10 phone card in my first week, and the guy said he'd protect me as a thank you. After I realized I'd been dumb I never made that mistake again. I found just being polite, but firm, was enough.
He'll be fine. He'll probably never get into a single fight. He'll be asked for commissary. He'll share some of his commissary, but everyone does that in prison anyway, especially with the guys that have nothing.
I was in for 8 years, 1 month. I was never convicted. I was just in jail because I didn't have the money to bail out, otherwise I would not have spent a day inside.
It's not like the movies at all. All the races talked to each other and were pretty respectful. If there was a fight it was usually enforced to be only one-on-one. Every now and again someone from a person's gang would back him up in a fight, but it wasn't necessarily race-specific as the gangs have become very multicultural - you'll find Latino gangs with blacks and vice-versa. Often it's because people are so mixed now - is the guy black, mixed, Latino? Who knows?
I would change the prison system by practically abolishing the prison system. I don't think putting people in a box helps them. Almost every single person I met in jail was in there because of a raft of mental health issues that made it so their brain said committing a crime was OK and fuck the possible consequences. We need vastly more mental health support, especially for men who typically are not open about their weaknesses.
I love how it's totally legal for the governor of Florida to send lucrative drug testing contracts to his wife's owned company but a guy getting a few stock options from a client is illegal.
I guess we'll just go back to big wads of cash in an envelope instead.
> I guess we'll just go back to big wads of cash in an envelope instead.
Uh so wait are you saying that because the elected official isn't held responsible that we should then lower the bar to permit all bribery? That doesn't make any sense.
The sense comes from that part of growing up when you come to the realization that it happens whether you want it to or not so not participating and acting holier than thou about it just makes you a sucker.
I had to look that up because I’m not familiar with the story, but it seems illegal in most other states. This Netflix case, by contrast, is federal. Still makes the Gov. actions seem sketchy
Why is this even illegal? Perks in the industry is normal. People are always trying to get their own businesses front and center for contracts. Some of these companies just don't have much to give out other than equity and what exactly is wrong about that?
Officially, the crime is fraud and the victim is Netflix, Inc. He defrauded the other employees and the corporate shareholders. He also laundered the money, which is also illegal and why the IRS got involved.
Kickbacks aren't the fundamental issue here. If this was a single-employee startup with no other investors or shareholders, this would be perfectly legal. Or if Netflix, Inc. had a policy that authorized individual executives to personally receive cash and stock from vendors as perks, then this would have been perfectly legal. However, as the article says, Netflix had an internal policy that he blatantly violated:
> Netflix policies prohibited conflicts of interest by its employees by its Code of Ethics and its “Culture Deck,” which required the disclosure of actual or apparent conflicts of interest and the reporting of gifts from entities seeking to sell products or services to the company.
First off, these were tech vendors giving kickbacks to the CIO, not producers bribing studio execs to get someone specific cast.
But you seem to be missing that kickbacks aren't illegal in and of themselves. Netflix corporate didn't have to institute an anti-kickback policy for its employees. But they did, likely because they didn't want an environment where execs are negotiating both for the company and for themselves. The moment an executive violates corporate policy to enrich themselves, it becomes fraud.
For another example, look at how college bribery schemes are illegal.
They're not illegal because they're unfair or immoral, they're illegal because the administrator is selling the spot that the college owns; it's not his/her spot to sell.
If the company wanted to be used by Netflix in exchange for equity, then they could make a deal with Netflix itself. This executive was essentially selling the rights to contracts (akin to spots) that he didn't have the right to sell.
You mean like forcing kids to buy brand new books so that they can get a code to use to take tests on an online platform that the professor gets kickbacks from that has nothing to do with the university the kid is attending?
What's the spot/contract/etc in that case, that the professor is selling but doesn't have the right to sell on behalf of the university for his own enrichment?
I don't see an example of how the university is losing revenue and being defrauded in that scenario.
The University is not being defrauded, but the professor is still taking advantage of their position to make a personal profit.
Leaving aside the legal issues (I'm not a law expert, so I don't know if it is illegal), don't you think it is incredibly immoral for a professor to require a specific book for their class on the basis that the publisher is going to hand a check to the professor?
The student is being defrauded. They signed up for something that was supposed to cost x but instead it costs y. Their degree being in jeopardy makes it blackmail from my perspective.
It's telling that you were more willing to make sure the university wasn't being defrauded but I guess the student can kick rocks right?
No, what I was trying to initially explain is that it is Netflix being defrauded. You pointed out that the company may only have equity to give, and I said that they weren't giving the equity to Netflix. They were giving it to an executive at Netflix in exchange for a contract, and it wasn't the executive's right to give that contract spot away for his own enrichment, because it's not his spot to give.
Similarly, in the case of college admissions scandals, it is the college being defrauded.
Now here, to make a parallel as you were intending, we'd have to see how the university is being defrauded.
I thought the college bribery schemes were mostly illegal because the lowered the price for a guaranteed admission slot too much and, more importantly, cut the university out of the loop by paying the admissions personnel directly.
It was illegal because the kickbacks were kept secret from Netflix.
If there was full disclosure to netflix, (but not other companies) this would have been perfectly legal.
Does anyone feel like wire fraud is a catchall term for when some people are hellbent on sentencing someone, who didn't do anything that was by itself a crime?
Shouldn't this be a civil case between Netflix and this guy? Why is criminal justice system even involved in this? It looks like very bad way to spend tax payers money.
Because, cynicism (and specific elected officials) aside, the government has a vested interest in people viewing it as a country of laws rather than a country of whatever you get off with is fair game.
For me it looks even worse. Netflix, instead of creating civil lawsuit against this guy, that they would have to pay for, silently bribed the right people in the justice system to charge him with some crime instead. This way Netflix punishes the man that did them dirty without paying a cent of their taxed legal money.
Instead now every taxpayer pays for salaries of prosecutors and judges and whoever else is necessary to help one corporation exact a little vengeance.
Presumably you think investors in Theranos should also have also have been on the hook for pursuing legal claims. So basically most white collar crime should be pursued because it's mostly not worthwhile on a dollars and cents basis for government to do so.
Or Enron?
It's just fraud. It's a small step to go from there to say that white collar crime doesn't really hurt anyone and it's on those who think they've been hurt to pursue redress in the courts on their own.
I think in Enron and Theranos cases, there were specific actual crimes happening. Like lying in the published information that's influencing the stock market. Or falsifying you financial records. Things specifically forbidden and labeled as criminal.
Not a thing that is so non-specific (in it's criminality) that you have to label it wire-fraud or mail-fraud (whatever that is) to even have a chance at making it look like actual crime, not just immoral thing he did that could harm his employer (but it's hard to tell to what extent it actually did).
Do you try to straw man me into position "all white collar crimes shouldn't be crimes"?
I can't tell how much of it is random people projecting their cynicism onto the business world, or if it's people who have been part of bribery/kickback schemes themselves trying to normalize the behavior online.
Either way, cases like this should make it clear that the behavior is not a good idea.