Former Netflix VP Charged In Alleged Kickback Scheme

SILICON VALLEY, CA – A former vice president for Netflix was arraigned this week in federal court in San Jose on an indictment that accuses him in a scheme to defraud the Los Gatos-based video-streaming provider. Michael Kail, 49, of Los Gatos allegedly took $690,000 in kickbacks in exchange for approving payments to at least nine tech companies seeking to do business with Netflix, a federal grand jury indictment alleges.

The indictment against Kail is dated April 26 and was unsealed Tuesday in San Jose.

It alleges that between February 2012 and July 2014, Kail, formerly in charge of the company’s Internet Technology department, executed a scheme to defraud Netflix of its right to his employment without conflicts of interest resulting in bribes or kickbacks, commonly known as honest services fraud.

Using the mail and interstate wires, including emails and an online document-signing platform, Kail received over $500,000 from at least three outside companies with which Netflix did business, the indictment alleges.

"Kail further sought and received valuable stock options from numerous other Netflix business partners," said prosecutors with the U.S. Department of Justice Northern California District.

"In exchange for these payments, Kail allegedly approved millions of dollars in contracts for goods and services to be provided to Netflix by these companies," federal prosecutors said.

The indictment alleges Kail created and controlled a limited liability company, Unix Mercenary LLC, to receive these kickback payments, which he used to pay personal expenses and to purchase a residence in Los Gatos.

The indictment charges Kail with 19 counts of wire fraud, three counts of mail fraud and seven counts of money laundering.

The indictment also seeks forfeiture of Kail’s Los Gatos property.

Kail was released on a $200,000 bond secured by the Los Gatos residence.

His next court appearance is scheduled for July 10.

If convicted, Kail faces a maximum sentence of 20 years in prison and a fine of $1 million or twice his gross gain or twice the gross loss to Netflix, whichever is greater, for each count of wire or mail fraud, and 10 years in prison and a fine of $250,000 for each count of money laundering.

Assistant U.S. Attorney Colin Sampson is prosecuting the case, which is a result of an investigation by the FBI and the IRS.

A lawyer for the former Netflix executive said his client "vigorously disputes the allegations of the indictment.

Kail "looks forward to vindication at trial where these allegations will be proven untrue," said defense attorney Joseph Ainley.

Ainley said in a statement: "As a known technology leader in Silicon Valley, Mr. Kail frequently advises cutting edge startups on next generation technology.

"This indictment is unfounded and takes direct aim at the spirit of innovation and entrepreneurship that makes the valley such a vital part of the economy," Ainley said.

After leaving Netflix in August 2014, Kail went to work for Sunnyvale-based Yahoo as chief information officer. He left that job the following May in the wake of a civil lawsuit filed against him by Netflix in Santa Clara County Superior Court in November 2014.

Netflix's lawsuit included claims of fraud, unjust enrichment, fraudulent concealment and breach of fiduciary duty. It alleged that Kail fraudulently took so-called "commissions" of 12 to 15 percent on the contracts he approved. The lawsuit was settled on a confidential basis in 2015.

After leaving Yahoo, Kail co-founded a Boston-based cyber security company called Cybric.

Bay City News Service contributed to this report.

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