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Thursday, March 30, 2023

Ex-Netflix Employees Accused of $3.1 Million Insider Trading Scheme

Five people, including three former Netflix employees, used confidential subscriber growth information to illegally trade in Netflix stock, netting $3.1 million, according to a Securities and Exchange Commission complaint filed on Wednesday.

Sung Mo “Jay” Jun, 49, of Bellevue, Wash., and three others have also been criminally charged in federal court in Seattle with three counts of insider trading. All four have agreed to plead guilty.

Each of the four defendants, as well as a fifth person, were charged with civil counts of insider trading by the Securities and Exchange Commission. All five have likewise waived their right to a trial and agreed to a civil judgment, with the penalties to be determined by the court.

Jun worked as a software engineer at the company from 2013 to 2017. According to the SEC complaint, he tipped off his brother, Joon Mo Jun, and a close friend, Junwoo Chon, about the company’s subscriber growth numbers in advance of Netflix’s quarterly earnings announcements.

The SEC alleges that Joon Mo Jun and Chon used that information to trade on Netflix stock on four occasions in 2016 and 2017. Chon made $521,000 from these illicit trades, of which he shared $60,000 with Sung Mo Jun, according to the complaint. The complaint also states that Joon Mo Jun made $215,000.

Also charged was Ayden Lee, 33, of San Jose, who worked as a software engineer at Netflix from 2016 to February 2021, and who considered Sung Mo Jun to be a mentor at the company. The complaint alleges that after Sung Mo Jun left the company in 2017, he repeatedly asked Lee to provide him with confidential subscriber numbers. Lee did so through 2019, according to the complaint.

Jun then passed that information to his brother and to his friend, according to the SEC complaint. In that time period, Chon made another $1.1 million, Sung Mo Jun made $453,000, and Joon Mo Jun made another $813,000 on illicit trades ahead of nine quarterly announcements, according to the SEC.

Sung Mo Jun was also friends with a third Netflix employee, Jae Hyeon Bae. The SEC alleges that Bae, Chon, Joon Mo Jun and Sung Mo Jun participated in a messaging channel called “Rage Against the Market,” in which they discussed stock trades. In one of these discussions, according to the SEC, Bae advised Joon Mo Jun to sell Netflix shares, knowing that Netflix’s subscriber growth would come in below the analysts’ forecast. The SEC alleges that that tip helped Joon Mo Jun net $72,875.

Bae, who left the company in 2019, was not charged in the criminal case, though he is charged in the SEC complaint.

Netflix declined to comment.

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