Ex-Microsoft manager sentenced to two years in jail for insider trading

[Himanshu Arora]

Brian Jorgenson, a former Microsoft employee, was sentenced to two years in prison last week for passing inside information to a stock trader. The 32-year-old was a corporate-finance manager at the software giant when he passed confidential information to his friend Sean Stokke.

Jorgenson and Stokke were accused of insider trading on three occasions: Microsoft's 2012 investment in Barnes & Noble and the Redmond-based company's two quarterly reports. According to the US attorney's office, the two men, who had earlier worked together at an asset management company, made a total of $415,000 from the three trades.

Back in 2012, Microsoft invested $300 million in Nook Media, Barnes & Noble's digital book business. Anticipating a rise in the value of the company's shares, Jorgenson passed the information to Stokke before the news was made public. Following the announcement, the bookseller’s share price jumped by about 50 percent, and the pair earned $184,000.

Jorgenson repeated the process two further times, leaking the information about Microsoft's failure to meet earnings expectations in Q4, 2013 and the company's increased Q1 profit in 2014.

"I cheated," Jorgenson said in the court. "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".

Stokke was sentenced to between one and one and a half years in prison last month. On the other hand, Jorgenson, who had asked for one year and a day in prison along with 500 hours of community service, was handed down a harsher sentence. "It is important that you serve as a public example", US District Judge Marsha Pechman said.

Permalink to story.

https://www.techspot.com/news/57703-ex-microsoft-manager-sentenced-to-two-years-in-jail-for-insider-trading.html

 

[VitalyT]

All the while the bigger fish continues swimming happily...

Stop wasting our time with stories of small crooks who got caught making dimes. Tell us about the ones who continue making many millions and even billions from inside trading and never get caught simply because they are too rich and can afford an army of lawyers to cover their asses. Then it might make a good reading...

Apologies, but this mediocre press gets weary at times, especially for a supposedly tech-news website...

 

[davislane1]

All the while the bigger fish continues swimming happily...

Stop wasting our time with stories of small crooks who got caught making dimes. Tell us about the ones who continue making many millions and even billions from inside trading and never get caught simply because they are too rich and can afford an army of lawyers to cover their asses. Then it might make a good reading...

Apologies, but this mediocre press gets really weary...

I actually find it quite amusing. Had he simply taken the time to actually learn to trade (see: done it the hard way), he'd probably have a reliable stream of additional income. Instead, he went for the quick cash and got burned. Now, this may not be as satisfying as seeing members of congress or central bankers answer for their financial shenanigans, but I'll take my victories where I can get them.

 

[Skidmarksdeluxe]

I like the way he asked for his own sentencing. What happened to the times when the courts determined the sentence? But yeah, he's small fry and he took the fall because the same laws doesn't seem to apply to the more powerful and wealthy.

 

[cmbjive]

No, Jorgenson, insider trading is definitely a gray area and what it is gets redefined quite a bit by the SEC and the Justice Department.

I wonder how exactly he was caught doing this insider trading. And I wonder if people who lose money on trades that constitute insider trading are ever prosecuted.

By the way, the Congress can engage in this behavior all day long. Can't have the serfs acting like the lords, now can we?

 

[davislane1]

No, Jorgenson, insider trading is definitely a gray area and what it is gets redefined quite a bit by the SEC and the Justice Department.

I wonder how exactly he was caught doing this insider trading. And I wonder if people who lose money on trades that constitute insider trading are ever prosecuted.

Insider trading is hardly a grey area. Now, he may choose to rationalize his actions however he pleases. But the man broke the rules, simple as that.

 

[cmbjive]

Insider trading is hardly a grey area. Now, he may choose to rationalize his actions however he pleases. But the man broke the rules, simple as that.

Insider trading may be against the law, but as far as what insider trading is indeed very murky. Just take your comment above regarding learning how to trade. How exactly can one learn how to trade if the boundaries of what legal and illegal trading is rapidly becoming more blurred? For example, if you overhear two people talking about a product that is still in development stages and is very promising, do you get to trade on that information? Or are you duty bound to wait until that product is close to being released to market to make the buy?

Also, why is it that insider trading is illegal when it pertains to stock buying, but if you happen to have insider information in another market - say, real estate - buying and selling based on key information is completely legal? Insider trading has hardly prevented people from getting rich or gaming the system...after all, if the two learned to trade there is a good probability they wouldn't have been caught in the first place.

 

[davislane1]

Insider trading may be against the law, but as far as what insider trading is indeed very murky. Just take your comment above regarding learning how to trade. How exactly can one learn how to trade if the boundaries of what legal and illegal trading is rapidly becoming more blurred? For example, if you overhear two people talking about a product that is still in development stages and is very promising, do you get to trade on that information? Or are you duty bound to wait until that product is close to being released to market to make the buy?

Also, why is it that insider trading is illegal when it pertains to stock buying, but if you happen to have insider information in another market - say, real estate - buying and selling based on key information is completely legal? Insider trading has hardly prevented people from getting rich or gaming the system...after all, if the two learned to trade there is a good probability they wouldn't have been caught in the first place.

It seems to me that you don't understand what insider trading is. At its most basic level, it is trading on information not available to the general public. This is the textbook definition.

One learns to trade simply by understanding how order flow works in the markets they trade. Specifically, learning to identify price points in assets where there is likely to be an imbalance in supply and demand. This is how money is made across the economy, and it is no different in short term trading. A trader doesn't need to know why other participants are buying or selling, only that they are. This is how floor traders used to do it, this is how electronic traders (such as myself) do it, and this is exactly how HFTs do it. In investment the same process occurs, but fundamental data is the primary tool used to anticipate future order flow.

Insider trading is illegal in all tradeable markets, not just equities. If I happen to get a quote on Natural Gas inventories today, before the number comes out on Thursday, and buy or sell natgas futures accordingly, I've engaged in insider trading. The same is true if a CME employee texts me the details about the buy and sell orders waiting to be filled at the trade desks.

Insider trading only occurs when a special relationship is exploited to gain access to information not available to the market as a whole. It is the same difference that exists between taking the SAT exam honestly or using an answer sheet. There is no room for interpretation.

 

[cmbjive]

It seems to me that you don't understand what insider trading is. At its most basic level, it is trading on information not available to the general public. This is the textbook definition.

So what, then, defines the "public"? Who is the "public" in this situation? The entire United States? Fellow traders?

If I have insider information and just blurt it out in a party during a drunken stupor and everyone acts on that information does that qualify as the public?

The textbook definition is not as textbook as you make it seem to be.

Insider trading is illegal in all tradeable markets, not just equities. If I happen to get a quote on Natural Gas inventories today, before the number comes out on Thursday, and buy or sell natgas futures accordingly, I've engaged in insider trading. The same is true if a CME employee texts me the details about the buy and sell orders waiting to be filled at the trade desks.

Not all markets are trading markets, which is why I used the specific example of real estate. If I discover information about a piece of land, and the new zoning requirements that are planned for that land, or if there is some resource that I discover is on that land that is not privy to another person and make a move on that why is that a legal use of insider information but in your example you have to wait until Thursday to make the trade otherwise it would be considered insider? Who, in your view, is exactly hurt by you acting on information before others do?

 

[davislane1]

So what, then, defines the "public"? Who is the "public" in this situation? The entire United States? Fellow traders?

If I have insider information and just blurt it out in a party during a drunken stupor and everyone acts on that information does that qualify as the public?

If it is confidential information, no. It's inside information. This would, of course, change if you leaked it at a press conference or something.

Not all markets are trading markets, which is why I used the specific example of real estate. If I discover information about a piece of land, and the new zoning requirements that are planned for that land, or if there is some resource that I discover is on that land that is not privy to another person and make a move on that why is that a legal use of insider information but in your example you have to wait until Thursday to make the trade otherwise it would be considered insider? Who, in your view, is exactly hurt by you acting on information before others do?

Insider trading laws apply to tradable markets, not transactions in other markets. Think of this another way. Speed limits apply to a specific class of vehicles. Just as you cannot ticket an airline pilot for flying over an active school zone at 280mph, you can't be guilty of insider trading in a market that doesn't fall under the purview of the law.

Your serendipitous discovery is very much public information. It is discoverable and not confidential. That other market participants are unaware of it is irrelevant. This is fundamentally different from my nat gas example. Weekly natural gas inventories are not disclosed to the public until Thursday, each week. If I catch wind of what that number is ahead of the release, I've gained an inside edge that the rest of the market does not have equal access to. With this information, I can then accumulate a nat gas position with full knowledge of what will happen when the announcement happens on Thursday. The only way I could trade this information legitimately would be to wait for the actual inventory release, like everyone else.

An even better example is a firm that recently made headlines for flying drones around nat gas supply depots. They made a killing trading nat gas because they knew exactly what the inventories were, ahead of the announcement. At face value, this seems like it is some type of insider trading. Thing is, it was completely legitimate: anybody else could have purchased a drone, equipped it with thermal cameras, and collected the same data. The firm simply out smarted everyone else.

The problem that is created by insider trading is that it removes an equal playing field. The integrity of the market is harmed. Normally, trading and investment requires risk. Consequently, strategies are developed to ensure the probabilities of success result in net income. You're going to be right a lot (if you know what you're doing), but you're also going to be wrong on occasion. When you trade on inside information you have only negligible risk, financially speaking. It's very difficult to be wrong. Going back to the SAT example, it's the difference between legitimately trying to earn a high score and using an answer sheet to get a perfect one.

 

[cmbjive]

Insider trading laws apply to tradable markets, not transactions in other markets.

In other words insider trading IS arbitrary in definition. There are lots of people who got very rich very quickly in other markets such as commodities (not commodities trading) and real estate on the very fact that they got the information first and exercised accordingly. As you've stated in your last paragraph, if the purpose of making insider trading is to create a level playing field (more on that later) why is it that trading is considered inequitable but not other markets where one can get rich just as fast?

Your analogy to a speeding airplane over a school zone is flawed. Driving laws won't regulate the speed and height of an airplane, but aviation law DOES have laws that regulate the speed and height of an airplan's flight. So there is no inequity created there because the overarching theme of both forms of transportation - safety and well-being of passengers, bystanders, and operator - are still intact. The same cannot be said of insider trading, where only the trader is subject to stricter scrutiny than some other investor.

As far as your example is concerned I still don't see the difference to what I've pointed out, serendipitous or not. In your example above, you've defined the public as only being released to other traders. How does that apply if, in random conversation with another person, I mention something that is privileged information but the people I am conversing with are only privy to the knowledge that I work for the company? Has my unofficial release suddenly turned that information into public information? The case above says it did not, but then what happens if I have the same conversation but a third party unrelated to either me or my conversating partner hears it and then trades on the information? Is that person guilty of insider trading?

My point is that insider trading is being ever expanded so that the lines between what is or isn't illegal is becoming more blurred. The definition of insider trading, when it first was established by The Securities Act of 1933, was very limited in scope and really only applied to executive leadership. Now, after case upon case being argued in the courts, the definition was been expanded to include almost anyone who has some tangential relationship to the information in question.

The problem that is created by insider trading is that it removes an equal playing field. The integrity of the market is harmed.

See this is the problem with the entire premise of insider trading. In what way did the above two, or Rengan Rajaratnam or Joseph Nacchio (who's a bastard for many reasons, but not for insider trading) create an inequitable playing field by trading on information they knew about? At least in Ol' boy Joe's case Qwest was going to sink either way and that was due to mismanagement and making a buy on an overpriced telecommunications company. In fact, and you can attest to it, but the stock market is inherently inequitable. How exactly is it fair that venture capitalists and hedge funds can get in on the ground floor of an IPO and drive the initial price to astronomicl proportions before even the stock has officially been released?

Again, with your SAT example, the cheater must purposely steal information in order to get ahead. If insider trading was solely regulating the illegal obtaining of a corporation's information for the purpose of financial gain I would be in lockstep with your thinking because the thief used ill-gotten means in order to enrich himself. But then we have laws against theft already so I wouldn't see the need for another law regulating theft.

 

[captaincranky]

.

Think of this another way. Speed limits apply to a specific class of vehicles. Just as you cannot ticket an airline pilot for flying over an active school zone at 280mph, you can't be guilty of insider trading in a market that doesn't fall under the purview of the law.....[ ]....

Actually if he's in controlled airspace and too low, you can. If not for the speed itself, at least for the overfly. Or, as they say, "related offenses".

If you walk into the corner store with a gun, pull it out and wave it around, you can get a nickel for that. Never mind if you rob the place, that's another 5 years. Net take, a hundred bucks or so. How is 2 years for a half million dollars, "equitable sentencing"?

From a personal standpoint, I wish they'd forbid convicted individuals to speak at their sentencing hearing. What comes out of their mouths is at least as phoney as the "reformation by religion" they experience once they get to jail. And speaking of jailhouse preachers, they should outlaw religion in jail while they're at it. Those "reformed convicts ", become "preachers", "imams", or as I like to call them, "high practitioners of the art of bullsh!t.. Since they're sociopaths, they then proceed to talk the people of the hood out of their life savings, "for the glory of God".

"If you can't get a job, you start a church"..

 

[davislane1]

If you walk into the corner store with a gun, pull it out and wave it around, you can get a nickel for that. Never mind if you rob the place, that's another 5 years. Net take, a hundred bucks or so. How is 2 years for a half million dollars, "equitable sentencing"?

The fact that it was a trade and not a theft. Sticking with my apparently futile SAT analogy, there's a big difference between using cheat sheet and breaking into SAT building to alter scores. He deserves no more jail time than an athlete who's caught doping. But he also deserves a lifetime ban from participating in financial markets (SEC and exchange rules may or may not establish this automatically, I don't remember).

 

[captaincranky]

The fact that it was a trade and not a theft. Sticking with my apparently futile SAT analogy, there's a big difference between using cheat sheet and breaking into SAT building to alter scores. He deserves no more jail time than an athlete who's caught doping.

OK, we can stick wityh this SAT analog if you like. Whether you cheat, or you break into SAT headquarters, your SAT results are null and void. And in the same way your stats are disallowed when you're caught doping, the 1/2 mil needs to be disallowed, repossessed, call it what you will.

This argument is as old as time. smart crooks go to the camps, dumb crooks to the penitentiary. A pen isn't a 9 mil, he's a good boy, give him a smack on the wrist. For Christ's sake, even Martha Stewart did 9 months for this crap.

 

[davislane1]

OK, we can stick wityh this SAT analog if you like. Whether you cheat, or you break into SAT headquarters, your SAT results are null and void. And in the same way your stats are disallowed when you're caught doping, the 1/2 mil needs to be disallowed, repossessed, call it what you will.

Violation of the rule results in fines upto $5 million per infraction. They aren't keeping the money.

 

[captaincranky]

Violation of the rule results in fines upto $5 million per infraction. They aren't keeping the money.

-They'll likely get great tans and play a lot of tennis at Allenwood though.

Besides, Federal crimes usually carry a minimum of 5 years & $250,000.00 anyway. (When I say "minimum" I'm referring to the "maximum" statutory penalty). They're not like traffic tickets "$25.00 or 10 days" sort of affairs.

Well that, and the generally easiest charge to prove,l "conspiracy", carries a nickel.. So, even if you could talk your way around the charges with your "SAT analog", they still committed conspiracy.

 

[davislane1]

-They'll likely get great tans and play a lot of tennis at Allenwood though.

*shrugs* I'm comfortable with that. Tyrone should be reserved for real criminals. Thugs. Conmen. Boldfaced crooks... You know: Congressmen.

 

[captaincranky]

*shrugs* I'm comfortable with that. Tyrone should be reserved for real criminals. Thugs. Conmen. Boldfaced crooks... You know: Congressmen.

Well, the US has (always has been?) become a feudal oligarchy. The problems is, the serfs no longer grow food or contribute soldiers.

Speed limits apply to a specific class of vehicles. Just as you cannot ticket an airline pilot for flying over an active school zone at 280mph, you can't be guilty of insider trading in a market that doesn't fall under the purview of the law.

Ironically, flying the same jet too slow over the schoolyard, would likely get, "risking a catastrophe" tacked on. Because you see, "when the airplane stalleth, the airplane falleth"

 

[Guest]

HE didn't ask for his own sentence.....his attorney requested that...which is absolutely normal procedure at a sentencing hearing when there is no plea agreement in place..He could have gotten a lot more than 24 months....it was left entirely to the sentencing judge. The max is 20 years. The prosecuting attorney wanted 36-48 months originally but changed her tune to 30 months on sentencing day. I was there & Mr. Jorgenson took full responsibility for his crime. He made NO excuses & even stated to the judge he was not asking for leniency even though over 100 letters had been sent to judge in support of him. Also, there were over 75 in courtroom to show support.
As far as the money..........well, that amount was inflated by the government. And anything that was in account was seized way back in December & yes, they are both in forfeiture. Both of these guys are serving time, they will rebuild their lives, I am sure. They succumbed to temptation...they broke the law & they are being punished for it. As far as them being able to have any career in the financial world, well, no, that won't happen.