Federal prosecutors have charged a former senior Microsoft manager and another individual with multiple felony counts of insider trading. They are alleging that the former manager passed confidential information to a friend on several occasions, and that the two individuals made almost $400,000 through investments based on this information. U.S. v. Jorgenson, et al, No. 2:13-mj-00613, complaint (W.D. Wash., Dec. 17, 2013). The federal Securities and Exchange Commission (SEC) has also filed a civil suit against the two men seeking forfeiture of their gains from the alleged scheme. SEC v. Jorgenson, et al, No. 2:13-cv-02275, complaint (W.D. Wash., Dec. 19, 2013). Insider trading laws are intended to prevent unfair advantages in stock markets from information that is not public or not otherwise available to ordinary investors. Prosecutors must prove that a defendant knew the information at the time they bought or sold stocks or other securities, which can be a difficult burden to meet.
According to the government’s criminal complaint, the Microsoft manager, Brian Jorgenson, tipped off a friend, Sean Stokke, regarding inside information on three separate occasions. He allegedly told Stokke about Microsoft’s planned investment in Barnes & Noble’s e-reader business in April 2012. The two men reportedly gained $185,000 after the public announcement of the investment on April 30, 2012, when Barnes & Noble’s stuck went up by fifty-one percent.
The second disclosure allegedly occurred in July 2013, when the defendants purchased Microsoft options in advance of the announcement of a report showing that earnings were lower than projected. Microsoft’s share price dropped, and the options reportedly yielded profits of about $195,000.
In October 2013, the disclosure of quarterly earnings that exceeded projections allegedly led to derivative trades by the two defendants for further profit. Overall, prosecutors allege that they made about $393,000 in profit from the scheme. The criminal complaint lists thirty-five counts of insider trading, consisting of specific purchases or sales of stocks and options between April 2012 and October 2013. A conviction of a single count could result in up to twenty years in prison, a fine of up to $5 million, or some combination thereof. 15 U.S.C. § 78ff.
Insider trading is considered a form of securities fraud under federal law, which prohibits the use of “manipulative and deceptive devices” in the purchase or sale of securities. 15 U.S.C. § 78j(b), 17 C.F.R. § 240.10b-5. Federal regulations expressly include trades made “on the basis of material nonpublic information about that security or issuer” in a way that breaches “a duty of trust or confidence” to the issuer or its shareholders. 17 U.S.C. § 240.10b5-1. Prosecutors must prove that a defendant knew about the “material nonpublic information” at the time they made the trade. A defendant may raise several affirmative defenses, such as an obligation or plan to trade that existed before they learned the information, which the defendant did not modify after learning the information.
Defendants in criminal cases should consult with an experienced criminal defense attorney in order to ensure that the police, prosecutor, and court respect their constitutional and procedural rights at all times. Michael J. Brown has fought for west Texas defendants for more than twenty years, drawing on his experience in law enforcement and as a prosecutor. Contact us today online or at (432) 687-5157 to schedule a confidential consultation to see how we can help you.
U.S. v. Jorgenson, et al (PACER registration required), No. 2:13-mj-00613, U.S. District Court, Western District of Washington, Seattle Division
SEC v. Jorgenson, et al (PACER registration required), No. 2:13-cv-02275, U.S. District Court, Western District of Washington, Seattle Division
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