On August 18, the SEC announced that it had charged three former Netflix Inc. software engineers and two close associates with insider trading. The SEC alleges that the group realized over $3 million in profit by trading on material non-public information concerning Netflix’s subscriber growth. The SEC claims that, between 2016 and 2017, Sung Mo Jun provided his brother Joon Mo Jun and his friend Junwoo Chon material non-public information concerning the growth of Netflix’s subscriber base, a key metric in Netflix’s quarterly earnings. Based on that information, SEC alleges that the brother and friend both traded in advance of Netflix earnings announcements.
According to the SEC, Sung Mo Jun continued to obtain material non-public information concerning Netflix subscriber growth following his departure from the company in 2017. After obtaining the information from a former colleague at Netflix, the SEC alleges that Sung Mo Jun, his brother, and his friend traded in advance of earnings announcements until 2019. The SEC further alleges that another Netflix engineer, Jae Hyeon Bae, provided another individual, Joon Jun, subscriber growth information in advance of Netflix’s July 2019 earnings announcement. Joon Jun, Sung Mo Jun, and Mo Jun’s friend all allegedly used encrypted messaging in an attempt to conceal the illicit trades. SEC also alleges that the defendants paid kickbacks to the sources of the material non-public information. Five individuals have been charged with insider trading, and all five have consented to the entry of judgments against them. Four of the individuals have also been charged criminally by the U.S. Attorney’s Office for the Western District of Washington.
These charges are significant because the alleged illegal conduct was detected through the SEC’s use of sophisticated data analytics tools. More and more, these tools are being used to identify suspicious trading that would not otherwise be detected. In the past, trading in the accounts of relatives might have shielded a trader from the consequences of illegal trades, but with the growing use of data analytics, that sort of covert conduct is being discovered and prosecuted more often. The SEC’s Market Abuse Unit’s Analysis and Detection Center has made detection of illicit trading by relatives and friends common place, and increasingly, insiders who tip their loved ones are facing charges.
The attorneys at Chilivis Grubman represent clients of all types and sizes in connection with SEC investigations and related securities litigation. If you need assistance with such a matter, please contact us today.