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Ninth Circuit Upholds Former Netflix Officer’s Conviction Based on Bribes, Kickback Scheme
By a MetNews Staff Writer
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MICHAEL KAIL convicted felon |
The Ninth U.S. Circuit Court of Appeals yesterday affirmed the conviction of a former Netflix Inc. executive based on charges that he accepted bribes from technology startup companies looking to do business with the streaming platform.
Its decision came in a memorandum opinion signed by Circuit Judges Michelle T. Friedland, Daniel A. Bress, and Senior Circuit Judge Danny J. Boggs of the Sixth U.S. Circuit Court of Appeals, sitting by designation.
Michael Kail, who served as vice president of the company’s information technology operations from 2011 to 2014, is accused of accepting over $500,000 in kickbacks in exchange for approving millions of dollars in contracts to companies looking for an opportunity to work with Netflix.
One example highlighted by prosecutors involved Platfora Inc., a data analytics company based in San Mateo. Kail handed over information about a competitor’s contract bid price for software testing services in 2013 after Platfora issued stock options in his favor by way of an agreement hiring him to serve as an independent advisor.
He then signed, on behalf of Netflix, a $250,000-a-year contract with Platfora and urged colleagues to find a use for the purchased products, even though the streaming giant was already paying for a competing service.
Evidence was presented during the three-week jury trial that he accepted bribes from eight other companies, doing deals in which he would take up to 15% of the billings for himself as “commissions.”
Fraud Convictions
In April 2021, he was convicted of 21 counts of wire and mail fraud, in violation of 18 U.S.C. §1346, among other sections, and seven counts of money laundering, under 18 U.S.C. §1957.
District Court Judge Beth Labson Freeman of the Northern District of California sentenced him to 2 years and 6 months in prison on each count, to be served concurrently.
He filed a motion to set aside the verdict, arguing, as he did at trial, that the payments and stock options were compensation for independent work as an advisor for those companies, pointing out that “the vendors testified they did not grant stock options or make any payments to Mr. Kail with the expectation of anything at all with respect to Netflix.”
Freeman rejected the argument, saying:
“At bottom, the evidence does not preponderate so heavily against the verdict that a miscarriage of justice has occurred. Defendant’s motion for a new trial is DENIED.”
Constructive Amendment
On appeal, he argues, among other things, that the indictment was constructively amended, asserting that lawyers with the U.S. Attorney’s Office had consistently represented that they were planning on pursuing the charges based on honest-services fraud—alleging that the defendant misused his position for personal gain or advantage—but changed course a few weeks before trial to also assert that Kail had deprived Netflix of property.
Friedland, Bress, and Boggs said in a footnote:
“Kail argues that the Government’s decision to add the property fraud theory three weeks prior to trial was prejudicial because the Government had represented to Kail over almost three years that it was pursuing only an honest services theory. But whether the Government’s strategy allegedly disrupted Kail’s preparation is irrelevant to the constructive-amendment issue, which in this case turns on the wording of the indictment on its face, not on the Government’s representations about what the indictment meant.”
Looking to the indictment, they concluded:
“The indictment charged Kail with devising a scheme ‘to obtain money and property by means of materially false and fraudulent pretenses, representations, promises, and omissions,’ which “deprived Netflix of…its money and property by enabling the vendors to…negotiate more favorable contracts with Netflix than they would have been able to obtain.’ The indictment therefore gave Kail ‘fair notice of the charges’ brought under a property theory of liability.”
Honest-Services Fraud
The defendant also contends that insufficient evidence supports his convictions, arguing that the testimony presented at trial showed that there was no impropriety in his arrangements with the vendors.
Rejecting this assertion, the judges wrote:
“Although Kail observes that ‘every vendor witness…testified under oath that they had no [quid pro quo] agreement’ with Kail, the Government presented evidence to the contrary. As the district court explained, ‘[w]hile witnesses implicated in the scheme unsurprisingly distanced themselves from the bribes and kickbacks during live testimony, there was ample contemporaneous documentary evidence that illustrated a quid pro quo scheme.’ Our independent review of the record confirms this….[W]e conclude that a rational juror could have found beyond a reasonable doubt that Kail had a quid pro quo with each relevant vendor.”
They continued:
“The district court did not err in instructing the jury that, as to the money-laundering counts, ‘[t]he government is not required to prove that Mr. Kail knew that his acts or omissions were unlawful.’ Although an essential element of money laundering is the defendant’s knowledge that the transactions at issue involved criminally derived property,…the defendant need not know whether the act of money laundering itself is unlawful.”
The jurists declared that Freeman did not err in calculating the total losses to Netflix to be $1.5 million, for purposes of sentencing calculations, based on the money spent on contracts which provided unnecessary products or inferior services to other options at the company’s disposal. They remarked:
“Although Kail points to countervailing evidence in the record suggesting that Netflix received at least some value from the contracts…, that countervailing evidence does not show that the district court clearly erred in finding the Government’s evidence more compelling.”
The case is U.S. v. Kail, 21-10376.
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