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Former Netflix Software Engineers Charged Over Alleged Insider Trading Ring

A former software engineer at Netflix, was at the centre of a long-running scheme to illegally trade shares using insider information about the company's subscriber growth

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Divya Dhadd
Divya Dhadd
Journalist

UNITED STATES: The US Securities and Exchange Commission (SEC) said on Wednesday that it has charged three former Netflix software engineers over an alleged insider trading ring that generated around $3m (£2.2m) in total profit.

The ex-staff members and two close associates are charged with violating antifraud provisions and trying to evade detection by using encrypted messaging applications.  

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The subscriber growth data was used to trade the streaming giant’s shares ahead of its earning reports.

“We allege that a Netflix employee and his close associates engaged in a long-running, multimillion dollar NSE -3.20 % scheme to profit from valuable, misappropriated company information,” said Erin Schneider, director of the SEC’s San Francisco regional office. “The charges announced today hold each of the participants accountable for their roles in the scheme.”

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According to the complaint, while working for Netflix in 2016 and 2017, Sung Mo Jun, a former software engineer at Netflix, at the centre of a long-running scheme repeatedly passed non-public information to his brother and a close friend who both used it to trade ahead of multiple Netflix earnings announcements.

The SEC also alleged that after Sung Mo Jun left Netflix, he obtained confidential subscriber growth information from two other company insiders.

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The SEC said it uncovered the alleged scheme using data analysis tools to find suspiciously successful patterns of trading.

At the same time, the U.S. Attorney’s Office for the Western District of Washington filed a criminal case against four of the defendants, which could lead to prison sentences.

A peep at insider trading

Insider trading is the act trading of a listed company’s shares or other securities, such as bonds or share options, based on information that is not available to the public.

In countries like the U.S. and U.K., insider trading is illegal as it gives an unfair advantage to the “insiders” having access to the information.

Although laws around this differ in countries, in many jurisdictions a person who is aware of non-public information and trades on that basis may be subject to penalties by financial markets regulators as well as potentially facing criminal prosecution.

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