Surface Watch

Even crooks couldn't profit from Microsoft's Surface flop

Ex-Microsoft finance manager sentenced to two years in prison for insider trading; partner in crime got 18 months

A former manager in Microsoft's finance department was sentenced to two years in federal prison Friday after pleading guilty to an insider trading scheme that netted he and a partner more than $400,000.

Brian Jorgenson, 32, of Lynnwood, Wash., was given the two-year prison term in federal court in Seattle. His accomplice, Sean Stokke, 28, of Seattle, was sentenced to 18 months in jail last month for his part in the scam.

"I cheated. I tried to take a shortcut for my own financial gain.... I persuaded myself it was a gray area, when it clearly was black and white," Jorgenson said in court Friday, according to a statement issued by the FBI.

Jorgenson will face three years of supervised release after he serves his prison sentence, and he and Stokke must repay the $414,010 they gained from their illegal trades.

Authorities had already seized $140,550 held in Stokke's brokerage accounts; that amount will be applied toward the $414,010 the pair owe. Under criminal law, the government may seize additional assets owned by the men to make up the $273,460 difference.

Jorgenson and Stokke were arrested and charged with security fraud last December, weeks after Jorgenson was fired by Microsoft, where he had been a senior manager in the company's Treasury Group, and responsible for managing corporate cash and investments.

According to prosecutors, Jorgenson passed along information of upcoming events and their likely financial impact to Stokke, who executed transactions on stock in Microsoft and Barnes and Noble, as well as in a technology sector fund that was heavily weighted by Microsoft shares.

The two made their largest profit -- more than $218,000, or more than half of their total ill-gotten gains -- after Stokke bought 'put' options on Microsoft and the fund in early July 2013, betting that the price of those shares would fall.

And fall they did later that month, when on July 18 Microsoft surprised Wall Street with a dismal earnings report, largely because of a huge $900 million write-off to account for poor sales of the Surface RT, the tablet that launched in October 2012.

Microsoft's stock dropped nearly 11% in trading after the July 2013 earnings report went public.

The year before, Jorgenson and Stokke sold options in Barnes and Noble stock for a $185,000 profit after Microsoft announced that it was investing $300 million in the bookseller. The pair made $13,000 in October 2013 on a third trade based on insider information provided by Jorgenson.

The two men knew each other from time spent working at Seattle asset company Parametric Portfolios. Stokke claimed that it was Jorgenson's idea to use Stokke's accounts to conduct the illegal trades, and that the proceeds from the trades were to be split evenly between the two. Stokke had passed envelopes stuffed with $10,000 in cash to Jorgenson for the latter's split. They had hoped to raise enough money to launch a biotech hedge fund.

Although they were caught, Jorgenson and Stokke, if only temporarily, were among the few to actually profit from Microsoft's decision to enter the computing hardware market. According to an analysis of Microsoft's financials for the last two years, the Redmond, Wash. technology giant has lost at least $1.7 billion on its Surface tablet business.

The $218,000 they received in profit from their illegal trades of July 2013 was about 53% of what Microsoft reported as its total revenue for the Surface in the June 2014 quarter.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed . His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

From CIO: 8 Free Online Courses to Grow Your Tech Skills
Join the discussion
Be the first to comment on this article. Our Commenting Policies