Netflix's IT VP rigged vendor deals for kickbacks — convicted on 28 counts

Michael Kail was Netflix's vice president of IT operations from November 2011 to August 2014, with power to approve contracts and authorize payments for outside IT vendors. Per the Justice Department, he accepted bribes and 'kickbacks' from nine tech companies while approving millions of dollars in contracts for them, ultimately taking over $500,000 plus stock options — money he spent on personal expenses and a Los Gatos home bought in the name of a family trust.

The mechanism was a shell company: Unix Mercenary LLC, registered on February 7, 2012, with no employees, no business location and Kail as sole bank signatory. Two days before registering it, Kail signed a Sales Representative Agreement for 12% of the Netflix billings of staffing vendor Netenrich, later rising to 15% of payments to its subsidiary VistaraIT — about $269,986 and $177,863 respectively through mid-2014. Other kickback relationships ran through Platfora, Sumo Logic, Netskope, Maginatics, ElasticBox and Numerify.

Inside Netflix, colleagues were forced to use the resulting products, including one that suffered 'severe' performance problems and another employees objected to because they preferred a different product the company was already paying for. Netflix sued Kail in Santa Clara County Superior Court in November 2014 but dropped the case a year later; the federal indictment came in 2018.

In spring 2021 a federal jury convicted Kail on 28 of 29 counts — wire fraud, mail fraud and money laundering — and found the kickback-funded Los Gatos home forfeitable to the government. Each fraud count carried a maximum of 20 years, with sentencing scheduled for September 14, 2021.

Kail held both vendor selection and payment authorization — the approving and the paying hands were the same pair.

Unix Mercenary was registered two days before the first kickback agreement: the scheme was designed while he was inside Netflix.

Employees had to use the bribing vendors' products even after objecting, and at least one tool had 'severe' performance problems.

Netflix's own state lawsuit was dropped after a year, leaving the federal prosecution to surface the full scheme in 2018.

A buyer with unilateral approval power and no competing check is an open door: Netflix ran inferior vendor tools for years because one executive owned the pipeline.

Netflix's civil suit ended when the company dropped it in 2015. The federal case ended in conviction on 28 of 29 counts, with the government taking steps to forfeit the Los Gatos home bought with laundered kickbacks; acting US Attorney Stephanie Hinds described an executive who 'wielded immense power' over contracts and 'rigged that process' for personal cash and stock.