Microsoft Manager, Friend Accused of Insider Trading

Photographer: Paul Taggart/Bloomberg

Jorgenson alerted Stokke of Microsoft’s plans to invest $300 million in Barnes & Noble Inc.’s e-reader business in April of last year, according to an SEC complaint. Close

Jorgenson alerted Stokke of Microsoft’s plans to invest $300 million in Barnes & Noble... Read More

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Photographer: Paul Taggart/Bloomberg

Jorgenson alerted Stokke of Microsoft’s plans to invest $300 million in Barnes & Noble Inc.’s e-reader business in April of last year, according to an SEC complaint.

A former Microsoft Corp. (MSFT) executive and his friend made insider trades before company announcements, using disposable “burner phones” and stacks of cash to secretly reap more than $393,000, U.S. investigators said.

Brian Jorgenson, a manager in Microsoft’s corporate finance and investments division, tipped off Sean Stokke, a friend who allegedly traded on the information, the U.S. Attorney’s Office in Seattle said yesterday in a criminal complaint charging them with insider trading. The scheme ran from April 2012 through October of this year, prosecutors said.

Information on strategy and earnings at the world’s largest software maker allegedly was abused multiple times, in one case generating $185,000 in illicit gains tied to Microsoft’s plan last year to invest in Barnes & Noble Inc. (BKS)’s e-reader business. The pair eventually tried to hide their moves with the burner phones and by passing payouts in $10,000 cash increments, the Securities and Exchange Commission said in a related lawsuit.

Jorgenson, 32, and Stokke, 28, admitted to the insider trading, according to the criminal complaint in federal court in Seattle. In an interview with the Seattle Times before charges were announced, Jorgenson said he had struggled with the decision to trade on the Barnes & Noble deal.

“I lied to myself,” the newspaper quoted him as saying, as he recalled news stories about how people working in Congress freely shared market-moving information. “I told myself, ‘Members of Congress can do it.’ ”

‘Zero Tolerance’

Jorgenson wants to take responsibility and is ready to accept punishment, said his attorney, Angelo Calfo. Since Jorgenson was fired from Microsoft, where he earned $130,000 a year, he has made presentations to the company’s employees, warning them of the consequences if they do what he did, Calfo said in a telephone interview.

“Our company has zero tolerance for insider trading,” Microsoft said in an e-mailed statement. “We helped the government with its investigation and terminated the employee.”

Stokke’s attorney, Jennifer Horwitz, didn’t respond to a phone call and e-mail seeking comment on the case.

Jorgenson and Stokke met while previously working at asset manager Parametric Portfolios, where they talked of one day of having enough money to operate their own investment-fund business, according to the Justice Department’s complaint.

Project Newberry

Jorgenson joined Microsoft in 2011 and learned of a planned $300 million investment in Barnes & Noble’s e-reader on April 18, 2012, from his supervisor, according to details outlined by Kathleen Moran, a special agent with the Federal Bureau of Investigation, in the complaint.

The deal was code-named Project Newberry, Moran wrote. Jorgenson also discussed Microsoft’s strategic investments in a meeting with his working group, according to the complaint.

Phone records showed there were only two text messages between Stokke and Jorgenson from the beginning of March to that day, Moran wrote. After Jorgenson was briefed on the Barnes & Noble initiative, the men had 14 phone and text-message contacts within hours, according to the complaint. The next day, there were 13 more contacts, and Stokke deposited $4,000 in his online brokerage account.

That account had been largely dormant over the previous year, and what little trading Stokke had done before April 2012 focused on pharmaceutical and biotech stocks, according to court documents.

Stokke began buying Barnes & Noble call options on April 20. When Microsoft announced its investment 10 days later, the bookseller’s stock jumped 52 percent, netting proceeds of $184,857 in Stokke’s account.

Earnings Announcements

Jorgenson also warned Stokke before Microsoft announced earnings July 18 this year that missed analysts’ estimates, the government said. Stokke bought put options, which are contracts that allow the right to sell a stock at a specific price within a certain time period. The contracts eventually netted $195,000, according to the complaint.

The activity was repeated in October, when Jorgenson gave Stokke advance notice that Microsoft would beat its earnings estimates, the government said. Stokke purchased call options in a technology fund that owned Microsoft shares, resulting in a gain of almost $13,000, according to the complaint. Call options offer the right to purchase the underlying stock at a specific price during a specific time period.

“I am sorry,” Jorgenson said, according to the Seattle Times. “It was just greed. I was focusing too much on the material things. This is an aberration of who I am.”

The criminal case is U.S. v. Jorgenson, 13-00613, and the SEC case is U.S. Securities and Exchange Commission v. Jorgenson, 13-02275, U.S. District Court, Western District of Washington (Seattle).

To contact the reporter on this story: Greg Farrell in New York at gregfarrell@bloomberg.net

To contact the editor responsible for this story: Sara Forden at sforden@bloomberg.net

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