Federal law enforcement officials have filed civil and criminal charges against a group of men who allegedly used insider information to profit off trading in shares of Netflix Inc. and other companies.
The men, three of whom were Netflix employees, allegedly engaged in the insider trading scheme from July 2016 until July 2019, according to a civil complaint filed by the Securities and Exchange Commission and a criminal information filed by federal prosecutors in the Western District of Washington.
The group, which includes two San Jose residents, allegedly generated more than $3 million in profits by reacting to insider tips by buying or selling Netflix shares and options, according to the SEC.
"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 office, said in a statement.
A central part of the operation involved Netflix employees tipping off friends about its subscriber growth before the streaming media company announced the figure to the general public, according to the SEC's complaint. The key figure in the scheme was Sun Mo "Jay" Jun, the SEC said.
Jun, 49, worked at Netflix as a software engineer from December 2013 until February 2017, according to the SEC. From July 2016 until he left the company, he passed along tips about its subscriber growth to his brother, Joon Mo Jun, 45, and a close friend, Junwoo Chon, according to the SEC. Joon Jun and Chon used those tips to buy and sell Netflix shares and options, according to the SEC. Chon, in turn, paid what amounted to kickbacks to Sun Mo Jun, the SEC alleged.
After he left Netflix, Sun Mo Jun roped another company employee, Ayden Lee, into the scheme, according to the SEC. From June 2017 to July 2019, Lee, a San Jose resident, provided Sun Mo Jun insider information about Netflix's subscriber numbers, the agency alleged in its complaint. Sun Mo Jun not only traded on those tips, but he passed them along to his brother and to Chon, who also traded on them, according to the criminal information filed by the U.S. prosecutors.
The insider tips were allegedly worth millions
In 2019, Sun Mo Jun and his brother communicated with another of Sun Mo Jun's former Netflix colleagues, Jae Hyeon Bae via a messaging channel dubbed "Rage Against the Market'' on a business communications service, according to the SEC.
Just before Netflix's July 2019 earnings announcement, Bae, the other San Jose resident, told Joon Jun he should sell Netflix shares in response to a query from Joon Jun about the company's performance in the period, the SEC said. Thanks to that tip, Joon Jun earned nearly $73,000 in profits from trading Netflix's shares, according to the SEC's complaint.
All told, Jun Joon made $1.1 million trading Netflix shares and options based on such illicit tips, while Chon made $1.6 million, according to the criminal information. Sung Mo Jun profited from insider trading in Netflix to the tune of $1.2 million, according to the criminal charges.
But their scheme went beyond Netflix, according to the criminal information. The trio — Sun Mo Jun, Joon Jun and Chon — also traded in shares of two other technology companies based on insider tips, according to the criminal charges. Prosecutors did not name either the companies or the two people who provided the insider information. But one of the companies is based in Santa Clara, according to the criminal information.
Federal prosecutors charged Sung Mo Jun, Joon Jun, Chon and Lee with criminal securities fraud. The SEC filed civil securities fraud charges those four and Bae.
All five have reached consent agreements with the SEC that would bar them from further insider trading in the future, the agency said in its news release. As part of his agreement with the agency, Sung Mo Jun will be barred from being an officer or director of a public company. Bae agreed to pay a $72,875 penalty as part of his agreement.
