Five people, including three former Netflix software engineers, have been charged with using inside information about Netflix’s key subscriber growth metric to make $3.1 million in illicit trading profits.
The U.S. Securities and Exchange Commission said Sung Mo “Jay” Jun was at the center of the insider trading ring, both while he was employed as a software engineer at Netflix and after he left the company in February 2017.
Jun allegedly tipped off his brother, Joon Mo Jun, and close friend Junwoo Chon to Netflix subscriber growth in advance of four quarterly earnings announcements from July 2016 through April 2017. Also charged in an SEC civil complaint are two other former Netflix software engineers, Ayden Lee and Jae Hyeon Bae.
In a parallel action, the U.S. Attorney’s Office in Seattle filed criminal charges against all the same defendants except Bae. Chon pleaded guilty on Wednesday to a single count of insider trading.
“We allege that a Netflix employee and his close associates engaged in a long-running, multimillion dollar scheme to profit from valuable, misappropriated company information,” Erin Schneider, director of the SEC’s San Francisco Regional Office, said in a news release.
As the Financial Times reports, “As the entertainment business has moved towards streaming rather than traditional television, subscriber growth has become the most important metric for Wall Street in deciding whether to buy or sell media stocks.”
According to the SEC, Joon Mo Jun made approximately $215,000 and Chon made approximately $521,000 in profits from trading Netflix securities based on Jay Jun’s tips. Chon paid Jay Jun $60,000 from his profits in return for the information.
After Jay Jun left Netflix, Lee allegedly provided him with inside information that enabled Jun, his brother and Chon to make more than $2.3 million in advance of nine consecutive Netflix earnings announcements from June 2017 through July 2019.
During a discussion on the “Rage Against the Market” messaging channel, Bae advised Joon Mo Jun to sell Netflix shares, knowing that subscriber growth in the July 2019 earnings announcement would come in below the analysts’ forecast, the SEC said.
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