Two Seattle area men were charged today in U.S. District Court in Seattle with 35 counts of insider trading related to their purchases and sales of stock options related to Microsoft Corporation, announced U.S. Attorney Jenny A. Durkan. One of the men, BRIAN JORGENSON, 32, of Lynnwood, Washington was employed as a Senior Manager in Microsoft’s Treasury Group. The other, SEAN STOKKE, 28, of Seattle was a day trader who had previously worked with JORGENSON at an asset management company. The complaint alleges that the two used non-public information from JORGENSON’s employment at Microsoft to profit on the movement of Microsoft stock and the stock of related companies. The men are scheduled to appear in U.S. District Court in Seattle at 3:00 this afternoon.
“For every stock market winner, there is a loser, and trading on confidential inside information is a cheaters way of gaining at the expense of others,” said U.S. Attorney Jenny A. Durkan. “This conduct hurts companies, hurts individuals, and shakes faith in our financial markets. We will vigorously investigate and prosecute this type of conduct.”
According to the criminal complaint, the men allegedly profited on three distinct instances of insider information: Microsoft’s investment in Barnes and Noble; Microsoft’s failure to meet earnings estimates in the fourth quarter of fiscal 2013; and Microsoft’s increased first quarter earnings in fiscal 2014. The men allegedly shared their profits by STOKKE providing JORGENSON with envelopes of cash in approximately $10,000 increments.
Through his employment, JORGENSON became aware in early April 2012 that Microsoft was considering an investment in Barnes and Noble for its digital and college business. Beginning April 18 and continuing, phone records show JORGENSON and STOKKE were in frequent contact. STOKKE opened an online options account and on April 20, 2012 began accumulating options on Barnes and Noble stock. On April 30, Microsoft announced the investment in Barnes and Noble, and the Barnes and Noble stock jumped 49%. STOKKE sold all his options that day for a profit of more than $184,000.
In early July 2013, JORGENSON learned through his employment that Microsoft would not meet its earnings estimate. Phone records show his contact with STOKKE. Beginning in mid-July, STOKKE bought “put” options on Microsoft stock – essentially betting it would go down. When Microsoft announced the lower than expected earnings on July 18, the stock did drop and the “put” options resulted in a profit to the two men of more than $195,000.
The final instance of insider trading charged in the complaint relates to trading in advance of the announcement of better than expected first quarter 2014 earnings. In October 2013, because of his employment, JORGENSON learned that Microsoft would announce a 17 percent increase in earnings per share over the prior year. One day before the announcement, STOKKE used brokerage accounts controlled by the two men to purchase call options of a technology sector fund that is influenced by the price of Microsoft stock. Following the earnings announcement, Microsoft stock and thus the sector fund went up. The men executed their options and sold the shares for a profit of nearly $13,000.
“The high density of publicly traded companies in Seattle affords a large number of people access to insider information that can unfairly benefit their investment decisions,” said FBI Special Agent-in-Charge Laura M. Laughlin of the FBI Seattle field office. “While most employees will never exploit that knowledge, our FBI office is particularly attentive to uncovering when and where this type of fraud occurs. We have seen many types of schemes and evasion techniques by inside traders, but they all share an erroneous belief that they’ll never be caught.”
JORGENSON is no longer employed by Microsoft.
Insider trading is punishable by up to 20 years in prison and up to a $5,000,000 fine.
The Securities and Exchange Commission (SEC) is also filing a civil action against the men today.
The case was investigated by the FBI and the SEC. The case is being prosecuted by Assistant United States Attorney Katheryn Kim Frierson.