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  (Source: Amplify Partners)
But four of those employers just fired him publicly, others may fired him privately, but refused comment

Former Netflix, Inc. (NFLX) VP of IT infrastructure Mike D. Kail -- now Yahoo! Inc.'s (YHOO) chief information officer (CIO) -- appears to have placed himself in deep water and now he's sinking fast.  In recent weeks evidence has accumulated indicating a long track record of unethical financial behavior.  

I. Trading Contracts for Stock

Last week I presented readily available evidence documenting how poorly Mr. Kail had covered up some of tools he used to commit at least one form of fraud -- good old fashioned kickbacks. Ultimately, these charges effectively amount to theft of money from Netflix, his former employer.

The accusations read like textbook examples of kickback fraud.  He paid companies who then turned around and put part of that money back in bank accounts controlled by Mr. Kail, according to Netflix's sworn testimony.  He reportedly funneled the kickbacks to an LLC he wholly owned --a pretty typical ploy in such schemes. 

Kickbacks, as some readers pointed out in my prior piece, may be illegal, but are the corporate world equivalent of stealing from the cash drawer -- dumb petty theft, but not terribly devious.  But evidence in Netflix's sworn deposition indicating that Mr. Kail may have also been executing some more sophisticated fraud schemes, as well, amidst the crude parlor tricks.

Mike Kail taking selfie
Mike Kail, seen here taking a selfie, referred to himself as the "fashion CIO" on his Twitter.  But a darker alter-ego allegedly lurked beneath the surface, according to his former employer.
[Image Source: Mike Kail on Flickr]

Netflix claimed in pg. 10 (section 38) of its 17 page fraud lawsuit against Mr. Kail:

During Kail's employment with Netflix, Kail [is believed to have] entered into agreements with other companies that have contracts with or provide services to Netflix... Kail received certain benefits from these companies.  Netflix [has information indicating] that [the] benefits may have included, among other things, stock, and/or gift cards.

The passage in bold was particularly troubling.  During his time at Netflix, Mr. Kail landed ten or more separate paid advisory roles.  Most of these gigs were with small Silicon Valley IT startups, many of whom he is believed to hold stock in.

Frank's web of manipulation
Mike Kail appeared to be a fan of House of Cards and its scheming, dishonest protagonist, tweeting this picture. [Image Source: Mike Kail on Twitter]

The big question is how he obtained that stock.  More precisely there's growing suspicion that he awarded small contracts to startups (while at Netflix) in exchange for stock options from the contracted firm, a hypothesis alluded to in the above passage.

Mr. Kail was clearly an aggressive businessman when it came to cutting a deal.  The only problem is that most of his deals were illegal and unethical, according to Netflix.  He tried to lure startups into a variety of illegal fraud schemes, ranging from stock payouts to clumsy kickbacks.

His tools in these scams included the two LLC companies in California -- HighTech Mercs LLC and Unix Mercenary LLC -- that he founded.  According Netflix, the latter firm was a fraud vehicle.  Given the similarities between his two secret LLCs, there's reason to believe he may have used to commit up to a decade of fraud against former employers.

MDKail @ HighTech Mercs LLC

The longer operating LLC -- HiTech Mercs -- he filed in his own name. But when it came to the LLC he allegedly used to successfully defraud Netflix -- he used a third-party filer, SmallBiz to try to disguise his hand in the shadow company.

Eventually he had the brains to remove his own name from that LLC's webpage (which was originally the webpage for HiTech Mercs, see above).  Unfortunately for him, the webpage had already been archived numerous times, showing his name on the contact email for all to see.

II. The Firing Ensues

With clouds of suspicion growing over Mr. Kail's unethical behavior, many of the startups he "advises" are looking to cut ties, effectively canning Mr. Kail from his advisory role.  In the last week: ... have all fired Mr. Kail from advisory positions, according to comments to the CIO Journal.

Mike Kail
At least four firms have fired Mr. Kail from paid/official advisory roles. [Image Source: OneLogin]

A fourth organization -- venture capital firm Amplify Partners -- confirmed to The Wall Street Journal it had cut ties with Mr. Kail as well.  A fifth firm, Illumio, told The WSJ that it was reviewing its advisory appointment of Mr. Kail "in light of recent events."

Yet another startup Mr. Kail advised -- Maginatics -- said it cut ties with Mr. Kail at the end of October, a move which was likely coincidental.  Maginatics was recently acquired by EMC Corp. (EMC) and the termination predated the lawsuit publication.  So the fifth job he lost may have just been a bit of dumb luck.

Disruption of IT
Mike Kail boasted he was a "disruptive" influence in the IT world. That might have been an unintentionally apt proclamation. [Image Source: Mike Kail on Twitter]

One of the companies who "parted ways" with the embattled CIO gave a brief statement. ElasticBox commented:

The ElasticBox board has decided to part ways with Mike Kail.  We are currently working on a graceful transition.

Pending the outcome of the Netflix fraud lawsuit, Mr. Kail may face suits from the startups.  If it becomes clear he obtained shares via fraudulent representations it is possible those shares could be invalidated.  Reportedly he may have misled some of these firms into believing that he was acting as an official representative of Netflix and that Netflix was taking a stake in the startup via a shell company.  In reality it was Mr. Kail who was effectively stealing the stake for himself.

Six other startups... ...have listed Mr. Kail as an advisor.  All of these firms have thus far denied comment.

Two firms -- Box Inc. and Avegant -- are standing behind the embattled executive for now.  Box's support is particularly interesting given that the cloud storage firm is perhaps the biggest startup advised by Mr. Kail.  Box and Mr. Kail have close ties.  He wooed former Box Inc. CIO Ben Haines to join his IT management team at Yahoo, according to The WSJ.

Box

Box is standing behind Mr. Kail.

When looking at all these relationships, it is important to remember that some of the firms -- particularly the smaller ones -- may have had relationships with Mr. Kail founded on fraud against his former employers.  At the same time other forms (including perhaps Box) may have actually had legitimate relationships with him, believing he was the IT genius everyone claimed him to be.  That said, as evidence mounts of his illegal and unethical behavior, one must wonder how long these firms can continue to pledge their support.

III. When You Work at 10 Companies, It's Hard Work Finding Time For Fraud

Aside from fraud, the fact that Mr. Kail served as an advisor in an official capacity to up to 10 companies at a time (or more) suggests a fundamental lack of focus.  Even a vice president position at a company as large as Netflix is a incredibly taxing role in terms of time.  It would be hard to carry out the functions of a high level executive while simultaneously serving advisor roles at so many other companies, roles that typically carry quarterly time commitments.

CIO Peter Yared, former CIO of CBS Corp.'s (CBS) CBS Interactive venture found this angle particularly striking.  As a fellow CIO he had thought long and hard on the topic, and had some strong opinions about what it means to operate this way.
Juggling
Many CIOs feel it would be dishonest juggling even one or two paid advisory roles, as it would hurt your performance at your primary executive job.  Juggling 10+ paid roles?  That's incredible.
[Image Source: Amazing Circus Workshop]

He acknowledged that the money for paid/official advisory roles was tempting.  But he says that a good CIO would fight that temptation.  While he took on a couple of unpaid advisory commitments (e.g. his roles at Livefyre Inc. and URX) which carried less time commitments and less ethical concerns, he purposefully avoided the kind of juggled paid advisory roles Mr. Kail hoarded.  To simultaneously be a paid/official advisor to 10+ firms struck him as a rather shocking conflict of interest.

He comments to the CIO Journal:

A CIO’s job is extremely time intensive and I didn’t feel comfortable making the time commitment for official advisory roles.  An [advisory] board member has fiduciary duties and has to attend all board meetings, which for early stage companies can be monthly.

In other words, Mr. Kail was likely neglecting his job at Netflix.  And he's probably neglecting his job duties at Yahoo!  While the exact impact may be impossible to determine, this behavior invariably cost his primary employers in terms of performance.  And they were done wholly for his own financial gain.  Such a strategy might not be criminal, but it's certainly unethical and rather dishonest.

Also remember, if what Netflix swears under oath is indeed truthful and factual, what little time Mr. Kail was devoting to his primary job at Netflix he spent in the worst way possible.  When he wasn't gallavanting about in his other paid consultant gigs, he was reportedly masterminding fraud against his primary employer.  

Mike Kail
Netflix's suit, combined with the fact that Mr. Kail was employed by 10+ other firms, paint the picture of a ruthless, money hungry addict with no visible remorse for the damage he was doing.
[Image Source: Amplify Partners]

Add that in and you arrive at a rather stark picture of a man without ethics ruthless pursuing money at any costs.

Netflix has some accountability in the case.  It admits, effectively, that it gave Mr. Kail too much financial power and not enough "controls" -- monitoring to catch this kind of fraud.  And fraud aside, it seems obvious that Netflix never should have tolerated one of its executives dividing their time at ten or more other employers, executive level pay and benefits.  Netflix erred, but Mr. Kail exploited that error to the extreme, according to Netflix's sworn deposition.

IV. Is Yahoo Enabling the Addict?

The biggest elephant in the room is Yahoo.  Mr. Kail's arrival was feted by Yahoo CEO Marissa Mayer who gushed that he had "the perfect combination of experience and vision".

Yahoo logo


But if Netflix's claims are to believed, Mr. Kail was leading a double life using his technical expertise to gain positions of power which he then abused.  If he is found guilty of the grossly abusive, greed-motivated actions against Netflix, it would be unthinkable for Yahoo to keep him onboard.

In court Mr. Kail's guilt or innocence is yet to be decided.  But in the world of money decision makers must consider another factor -- risk.  And Mr. Kail is high risk, even if he somehow manages to convince a court of his innocence.

Yahoo should be operating with extreme caution, barring Mr. Kail from making any important spending decisions.  Because if there's one thing our investigation indicated, it was that Unix Mercenary is only the latest incarnation of a very old game Mr. Kail has been playing for perhaps a decade at the expense of his former employers.

Marissa Mayer
Marissa Mayer is gambling with her investors' money in allowing a man who faces lengthy, detailed sworn accusations of fraud continue to handle financial transactions at Yahoo. [Image Source: Bloomberg]

For now Ms. Mayer may be standing by her man -- CIO Mike Kail -- but she should beware lest he turns on her company.  He reportedly did precisely that to his last employer.  And statistically speaking, if there's one common thread from business crime stories, it's that those who commit fraud tend to have a hard time stopping.  The money and power their unethical behavior brings is a rush, a high of sorts.  It's potent.  And it's addictive.

But don't take my word for it.  Listen to former Microsoft Corp. (MSFT) financial manager Brian D. Jorgenson's apology to his friends, family, and employer during his sentencing hearing after being convicted of insider trading:

I am sorry.  It was just greed. I was focusing too much on the material things. This is an aberration of who I am.  I’m hoping that this mess I’ve created can be my message.  I made some stupid, stupid decisions that have put my future, and the future of my family, in jeopardy.  If [going to prison] is God’s way of getting the greed out of my heart, then this is good.  This is what I want to happen.

The statement is eye opening.  Mr. Jorgenson admits to falling into the grips of greed.  In his own words, he was too hopelessly addicted to quit his financial crimes against his employers and their investors.

Only prison or financial ruination can perhaps break the addiction of greed that fuels fraud in its many forms.  Until such an outcome, the addict will almost surely continue on his or her hungry, self-destructive path.

David Blaine and Mike Kail
Magician David Blaine poses with Mike Kail at a corporate party. [Image Source: Mike Kail on Twitter]

Netflix swears under oath that it has concrete evidence that Mr. Kail is treading that dangerous, thirsty path of addiction.  And if Yahoo does not cut ties with him, it may find itself his next victim.  And worse yet, unlike Netflix who had no idea of the monster it claims was lurking in its ranks, Yahoo has every warning, yet has not chosen to act on it -- yet.

Sources: CIO Journal, WSJ [1], [2]





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