The U.S. Securities and Exchange Commission (SEC) announced on August 18 (local time) that it had indicted its anti-Millix employees on insider trading charges. The former employee obtained information about the increase in Netflix subscribers before the financial statements were announced and shared it with his brother and friends.
According to the Securities and Exchange Commission, the central ones in insider trading were Sung Mo Jun, his younger brother Joon Mo Jun, and his friend Junwoo Chon. Jeon Seong-mo, who has a Korean surname, worked as a software engineer for Netflix from 2013 to 2017. He obtained information about the increase in the number of Netflix subscribers from 2016 to 2017 before the financial statements were announced and provided information to his brother and friends.
Referring to this information, they traded Netflix stock 4 times from 2016 to 2017 and made $215 million in profits by Jun-mo Jeon and $521,000 in Jun-woo Chun. In addition, it is said that Jun-woo Chun delivered $60,000 of the profits to Seong-mo Jeon.
Seongmo Jeon left Netflix in 2017, but Ayden Lee, who worked as a software engineer for Netflix from February 2016 to February 2021, became the next informant. He provided subscriber information upon request even after Jeon Seong-mo resigned. Seongmo Jeon shared the information she got from Aiden Lee with her younger brother and friends and earned $453,000 in Jeon, $813,000 in Junmo Jeon, and $1.1 million in Junwoo Chun by 2018. These groups have earned more than $3 million from these insider deals.
The SEC used data analysis tools to uncover suspicious transactions, but there were also records of transactions that did not go well even though they tried to keep profits. It is also revealed that the group used an encrypted messaging app to talk about the transaction to evade an investigation by the authorities.
They have been found guilty in a criminal case, and the amount of the fine will be decided in a civil case in the future. Aiden Lee was also not compensated for providing the information, and lawyers allege that he was taken advantage of by a mentor and friend.
In addition, a fine was also imposed in a civil lawsuit against Jae Hyeon Bae, a former Netflix employee who discussed a transaction with the group. Although he did not directly disclose subscriber information, he said he advised his party to sell Netflix shares when Netflix subscriber growth was below analysts’ expectations.
Netflix has a corporate culture that values internal transparency and is known for disclosing sensitive inside information to its employees. In his 2020 publication NO RULES, CEO Reed Hastings said that Netflix would probably be the only publicly traded company to share internal financial statements a few weeks before the quarter ended. Spencer Won, vice president of investment, points out in the book that subscriber information is usually highly confidential and that investors can make huge profits from this information. When he joined Netflix, he said he was quite surprised to find out that he received an email with subscribers before the financial statements were announced, as well as the fact that if all employees signed up, they could know the number of subscribers. Related information can be found here.