You cannot trade on material, non-public information, and that includes non-public information concerning the growth in your employer’s subscriber base or information contained in unpublished earnings releases.
And if you do, you will undoubtedly be caught, and subjected to some very harsh penalties. Fines, a return of three times the amount of your profits, plus interest, and in some cases, jail.
A group of Netflix employees are about to learn this lesson the hard way, if the charges brought by thet SEC against them are true. The SEC has announced insider trading charges against three former Netflix Inc. software engineers and two close associates who generated over $3 million in total profits by trading on confidential information regarding Netflix.
According to the SEC’s complaint, Sung Mo “Jay” Jun was at the center of a long-running scheme to illegally trade on non-public information concerning the growth in Netflix’s subscriber base, a key metric Netflix reported in its quarterly earnings announcements. The complaint alleges that Sung Mo Jun, while employed at Netflix in 2016 and 2017, repeatedly tipped this information to his brother, Joon Mo Jun, and his close friend, Junwoo Chon, who both used it to trade in advance of multiple Netflix earnings announcements.
The SEC’s complaint further alleges that after Sung Mo Jun left Netflix in 2017, he obtained confidential Netflix subscriber growth information from another Netflix insider, Ayden Lee. Sung Mo Jun allegedly traded himself and tipped Joon Jun and Chon in advance of Netflix earnings announcements from 2017 to 2019. The SEC alleges that Sung Mo Jun’s former Netflix colleague Jae Hyeon Bae, another Netflix engineer, tipped Joon Jun based on Netflix’s subscriber growth information in advance of Netflix’s July 2019 earnings announcement. Sung Mo Jun, Joon Jun, and Chon allegedly used encrypted messaging applications to discuss their trading in an attempt to evade detection. According to the complaint, Sung Mo Jun, Joon Jun, and Chon made approximately $3 million in total profits from the illegal scheme. The SEC Market Abuse Unit’s Analysis and Detection Center uncovered the trading ring by using data analysis tools to identify the traders’ improbably successful trading over time.
“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,” said Erin E. 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.”
“The defendants allegedly tried to evade detection by using encrypted messaging applications and paying cash kickbacks,” added Joseph Sansone, Chief of the SEC’s Market Abuse Unit. “This case reflects our continued use of sophisticated analytical tools to detect, unravel and halt pernicious insider trading schemes that involve multiple tippers, traders, and market events.”
The defendants are looking at a potential disgorgement order of 9 million dollars and to make matters worse, the US Attorney has filed criminal charges.
The attorneys at Sallah Astarita & Cox are experienced insider trading defense attorneys. The firm’s attorneys include former , and former SEC Senior Attorneys and securities fraud defense attorneys with decades of experience in defending SEC insider trading cases. Call 212-509-6544 to speak to one of their attorneys without obligation.