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Archived webpages, state LLC filings reveal Kail's poorly disguised ties to HiTech Mercs and Unix Mercenary LLC companies

We've dug up fresh details on a hot Silicon Valley fraud case.  We're guessing the former employers of the man at the center of the case might be interested in what we found.  In this piece we begin with a discussion of the facts in the case (including a copy of the filing), then we conclude showing what we've dug up about the firms the defendant operated.

I. Yahoo's Information Chief Allegedly Stole Half a Million in IT Kickbacks From Netflix

Yahoo! Inc. (YHOO) this week found itself in an awkward position when one of its newest executives was accused by his former employer of orchestrating a furtive fraud scheme.  The man at the center of the mess is Yahoo's new chief information officer (CIO), Michael D. Kail [LinkedIn][Twitter].

The charges come courtesy of Mr. Kail's former employer Netflix Inc. (NFLX) and they're pretty stunning.  Mr. Kail stands accused of using his position of power to set up a series of kickback relationships which put 10 to 15 percent of the $3.7M USD invoiced to two companies (around $550,000 USD) in his pocket over the course of roughly 2 and 1/2 years.

Netflix says these payments -- which cost it money -- were fraudulent (the first charge in the suit) and that Mr. Kail breached his fiduciary duties (the second charge) for failing to disclose them to his employer.

Mike Kail
Mike Kail, former Netflix VP of IT Infrastructure

On a technical basis Mr. Kail has been lauded as among the most technically proficient leaders in the field of infrastructure as a service adoption (IaaS) and rich media content delivery.  He sums up that experience in a March 2014 interveiw, where he recounted:

I have 23+ years background as a Unix System/Network Architect, where I’d spent time in and around DevOps, BigData, etc. before those became the buzzwords that they are today. Most recently in my previous role at Attensity, I ran a large Hadoop and Hbase cluster and managed other big data components. I joined Netflix in the summer of 2011 and currently serve as VP of IT Operations.

In a blog post he recalls being personally wooed away from Attensity by Netflix cofounder and chief executive Reed Hastings.  After the personal recruitment by Netflix's illustrious leader, in June 2011 Kail agreed became Director of Employee Technology at Netflix.  Just four months later, in October, he was promoted to "VP of IT Operations".

It didn't take long for the man in charge to push big changes at Netflix.  Most importantly he pushed Netflix to outsource much of its IT work to third party firms and to make a major switch from an in-house "IT stack" to a cloud-hosted IT system, leveraging IaaS resources.  But that, as Netflix's claims indicate, is where things went foul.

Here's the full complaint, filed in court:

Netflix v Kail by jasonmick



Netflix gave Mr. Kail full control of both negotiating contracts with third party service providers and in the financial side of those relationships (including invoices).  As Forrester Research, Inc. (FORR) analyst Christopher McClean says to The Wall Street Journal, this is a common mistake companies make -- not separating decision makers from the financial billing.  He comments:

This is a classic segregation of duties violation.  Netflix didn’t have enough oversight.

Unbeknownst to his employers, Mr. Kail launched a private company named Unix Mercenary LLC, whose name hints at its nature.  Mr. Kail approached firms with the offer of service contracts with Netflix, but with a unique demand as well -- Unix Mercenary would be paid a 12 to 15 percent cut of the money paid by the third party vendor.

Two companies, both Indian IT outsourcing cloud service providers, allegedly bit:
  • Vistara Inc.
    • cloud IT services provider
    • India based
    • Owned and operated by CEO Raju Chekuri
  • NetEnrich, Inc.
    • A spinoff of Vistara
    • India-based IT infrastructure management
    • Also owned by Raju Chekuri
A clipping from the lawsuit shows evidence that Unix Mercenary LLC was registered out of Mr. Kail's home:
Netflix -- Unix Mercenary

Netflix company emails in the court document above paint a fairly damning picture for Mr. Kail.  Notably he emails NetEnrich and Vistara employees asking them if they're aware of "my/our arrangement".  In another document he references a recent NetEnrich invoice, asking them about "getting my portion paid".  In a third email a NetEnrich rep emails him to discuss "your referral fees".

The suit alleges that other IT partners billed by Mr. Kail may have given him less liquid kickbacks, such as "among other things, stock and/or gift cards."

All of this is made much more juicier by the fact that this August Mr. Kail left Netflix to become Yahoo's CIO:

Yahoo Inc.

Marissa Mayer, Yahoo's CEO, had gushed in a press release about the hire:

The strength of our technical infrastructure is critical as we aim to deliver the best possible user and advertiser experiences. It also ensures that Yahoos have the tools and technology necessary to execute. After an intensive search for the right leader, I am excited to announce that today Mike Kail is joining Yahoo as our new CIO and SVP, Infrastructure.  Mike has the perfect combination of experience and vision to lead our IT and infrastructure to even greater global reach and scale.

In August Mr. Kail boldly proclaimed he was going to "freshen" Yahoo, commenting to CIO Magazine in an interview:

I want to bring some of the tech cred back to Yahoo, which has probably been a bit stale over the past few years.

Yahoo has declined comment to RE/Code (the first to report on the lawsuit) and The WSJ regarding its employee's possible fraud.

II. HiTech Mercs LLC, Unix Mercenary LLC, and Mr. Kail's Shady Operations

Our research indicates strong evidence that these claims are indeed valid.  And it also indicated Mr. Kail may have executed similar fraud schemes at his former employers.

Look at web.archive.org records we found that the URL unix-mercenary.com was operated by Mike Kail, starting as early as 2003.  At that time he operated a suspiciously similar sounding entity to Unix Mercenary LLC, dubbed HiTech Mercs, LLC.

HiTech Mercs LLC

California state corporate records indicate that HiTech Mercs LLC was founded by Mr. Kail in June 2003, eight years prior to his Netflix join date.  The records list Mr. Kail as a "managing director".  Indeed, in July 2004 the page was updated to feature an email address with Mr. Kail's name on it as the point of contact.

HiTech Mercs -- updated


State records indicate that a man named Helmet L. Fritz was later added as a "registered agent" of the company.  Another listing names him as "Helmut L. Fritz".

We searched for this individual and were able to find no trace of a U.S. employee with this name.  There is a German communications/IT worker named Helmut Fritz who works at Dievision.  But a search of Mr. Kail's friends list on his public profile Facebook Inc.'s (FB) social network revealed no sign of the two being connected.  In fact, Mr. Kail has no Facebook friend with the name "Fritz", which seems curious as he seems to have added many coworkers as friends.

On the other hand Helmut Fritz is also the stage name of French electronic musician Éric Greff.  Greff went as far as to write a faux autobiography for Fritz, and published a video biography dubbed "L'ami Fritz" ("Fritz, the friend").  Could this "Helmet/Helmut L. Fritz" be a made up tongue-in-cheek second-hand alter-ego of Mr. Kail.  It's hard to say, but his music interests on his Facebook page make it clear he liked European electronic music artists, so it seems possible....

Mike Kail electronic music


If my little theory that Mr. Kail is really "Helmut L. Fritz", there's perhaps some more legal questions for Mr. Kail, as I'm guessing that it's bad practice, legally speaking, to file corporate records under pseudonyms.

As for Unix Mercenary LLC, according to state business records it was founded in Feb. 2012 by someone named Christopher Thom, and used the titular site Mr. Kail clearly controlled as its homepage.  The company is registered in Monterey, Calif. to Christopher Thom.  But I spoke with Mr. Thom who clarified that the LLC was in fact filed on behalf of a third party and that he was not involved in the filing.  The filing was done by Arizona-based LLC registrar Small Biz (smallbiz.com).  

It appears that the LLC was filed by SmallBiz, who used Mr. Thom -- an agent -- as basically a California mailing address for the LLC.  We're guessing this filing was done on behalf of Mr. Kail.  We've reached out to Small Biz to try to clarify that is accurate.

Looking back at Unix Merc's homepage, we see that by Jan. 2014, Mr. Kail had removed his name from the site.  He also removed the graphic with his former entity ("HiTech Mercs"), replacing it with an image of the comicbook character "Moon Knight":

Unix Mercenary

The page has since been deleted.

But you would never guess what's still on Mr. Kail's public "Other Likes" on his Facebook page:

Moon Knight like


Who know that a grown man "liking" Moon Knight would be incriminating?  Mr. Kail could always removed that like.  Then again, I've already screenshotted it, so maybe it's not worth the effort.

I think I've shown pretty conclusively a few things here:
  • Mr. Kail operated an entity named "HiTech Mercs LLC"
    • This "company" had a homepage unix-mercenary.com
    • He possibly registered a fictious agent (Helmut Fritz) in official state filings
    • Mr. Kail openly served as its agent until sometime after 2011.
  • Mr. Kail launched another affiliated "company" -- Unix Mercenary LLC
    • He disguised his connection with this firm via a third party LLC filer (SmallBiz)
    • He has since deactivated the HiTech Mercs/Unix Mercenary homepage
Based on this, his past employers... ... may wish to carefully scrutinize their partner invoices that Mr. Kail had control of, lest there be further kickbacks to Mr. Kail's other company (HiTech Mercs).  After all, if he pulled this off once, chances are he may have done it before, as well.  

Mike Kail
Mike Kail probably isn't smiling now. [Image Source: Mike Kail/Twitter]

We've reached out to these companies sharing what we've found and letting them know to scrutinize their partner payments for kickbacks to Unix Mercenary LLC or HiTech Mercs LLC.

[Correction - 12/8/2014: The total amount of the accused fraud was previously stated as $3.7M USD.  That was actually the invoiced total, of which Netflix said roughly 12-15 percent was taken by Mr. Kail in kickbacks.  This suggest a total of roughly $500,000 USD, although the exact figure was not stated in the lawsuit.  The piece has been updated]

Sources: RE/Code, WSJ





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