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Father of four is sentenced to two years in prison for insider trading, loses $130K/year job

Brian D. Jorgenson, 32, had what most Americans would consider a dream job.  As a senior manager of a portfolio in Microsoft Corp.'s (MSFT) Treasury Group he earned over $130,000 USD per year and had a host of sweet benefits.  But in 2012 he made the fortuitous decision to secretly contact a former colleague whom he had worked with for several years at an investment management firm, prior to joining Microsoft.
 
I. Dream Job, Dream Home, Dream Family, Dream Life
 
The pair would engage in a series of three rounds of insider trading, a move which would ultimately cost Mr. Jorgenson not only his job at Microsoft, but also his freedom.  While Chief Judge Marsha J. Pechman of the U.S. District Court for the Western District of Washington at Seattle went relatively easy on the first time offender, he still will have to serve two years in prison for his white-collar crime.  He was also sentenced to 500 hours of community service.
 
His co-conspirator, day trader Sean T. Stokke, 28, was sentenced to 1 and 1/2 years in federal prison.  The duo will likely have to pay financial charges.
 
In 2011 when Mr. Jorgenson scored a coveted job at Microsoft he seemed to be on top of the world.  He and his wife Jessica had just had their third child -- a girl. 

Brian Jorgenson
Brian Jorgenson, 32, seemed to have it all together -- a great job, a wife, four kids, and a beautiful house.  But his world unraveled when U.S. feds caught him performing insider trading. [Image Source: Jesicca (Willis) Jorgenson/Facebook; Fair Use (17 U.S.C. § 107)]

Together with their previous children -- a boy and girl, ages 6, 3 --- they looked the perfect family.  Public records show they lived in a $283,000 USD home in Everett, Washington.

Brian Jorgenson
The former Microsoft manager is now serving time in prison and lost his job.[Image Source: Jesicca (Willis) Jorgenson/Facebook; Fair Use (17 U.S.C. § 107)]

But in April 2012, cash-strapped by his 7- and 4-year-old's private Christian school tuition bills, Mr. Jorgenson made a fateful decision.  Informed via a confidential internal email that his company would be purchasing a stake in Barnes & Noble Inc.'s (BKS) Nook e-reader business, temptation took hold.  He recalls in a candid interview with The Seattle Times:

“I struggled with this,” Jorgenson said.

He knew it was wrong, but he found reasons to look past that. “I lied to myself,” he said. He saw news stories about how members of Congress were allowed to pass on the sort of insider information that he couldn’t.

“I told myself, ‘Members of Congress can do it.’ ”

He said he called his friend, an experienced day trader, and they convinced one another it would be OK.

“I asked him if he’d be comfortable with me passing on information,” Jorgenson said. “I told him we would make money. He said, yep, he’d be comfortable with it. So I gave him the information.”

Nook
Mr. Jorgenson first tipped news of a pending deal with Barnes & Noble in 2012.
[Image Source: Getty Images]

The tip paid off handsomely for Mr. Jorgenson and his day trader friend Mr. Stokke, who worked as an investment analyst at a local aerospace firm, was emboldened by the success.  Inspired by the success, the next year Mr. Jorgenson would leak Microsoft's Q2 and Q3 2013 earnings reports to Mr. Stokke who correctly predicted that the Q2 result would lead to a drop in share prices, while the Q3 earnings would raise share prices.
 
II. Crime and Punishment
 
In total the pair netted just over $414,000 USD with their scheme, according to federal prosecutors.  Of that Mr. Stokke gave Mr. Jorgensen $40,000-50,000 USD placed within unmarked paper envelopes.  By 2013 Mr. Jorgenson was dreaming big, hoping to leave Microsoft and found a hedge fund called "BioHawks Investment Group" with Mr. Stokke, using much of the remaining money.

Microsoft new sign
The Microsoft financial manager planned to leave his firm and start a hedge fund with his proceeds from insider trades. [Image Source: Bloomberg]

But those plans were put on hold when investigators with the U.S. Security Exchange Commission (SEC) became suspicious of Mr. Stokke's trades.  While the pair had tried to cover their tracks with so-called "burner phones" -- prepaid cellular phones -- had dealt in cash only, and had even obfuscated their trading trends in the final trade by buying an ETF that was heavily cornered on Microsoft, their efforts at secrecy ultimately failed.
 
While prosecutors did not reveal their exact method for catching the pair publicly, often reviews of tax records and unusual trades turn up such mid-scale insider trading.  Also, potentially eyebrow raising was the very short time period between the initial Barnes & Noble options buys and the public announcement of the Nook deal.  After that, authorities may have been watching Mr. Stokke carefully.

SEC seal
SEC officials confronted Mr. Jorgenson at his home in November. [Image Source: Getty Images/Bloomberg]

Late last year federal prosecutors confronted Mr. Jorgenson at his home.  He recalls:

The doorbell rang and I went and opened it and there they were, about a dozen of them.  I told my wife to gather up the kids.  The agents were nice enough to let them leave for a few hours.  [At that point I decided] to man up.

But manning up wouldn't make his problems go away.  He and his partner were charged [PDF] with 35 felony counts each for insider trading, in violation of the U.S. Securities Act of 1934 (15 U.S. Code § 78) and corresponding sections of the electronic Code of Federal Regulations (e-CFR) (17 C.F.R. §240).  According to Reuters, these charges carried a maximum term of 20 years each.

III. Former Manager Says He's Thankful, Humbled by Charges

Ultimately prosecutors and Chief Judge Marsha J. Pechman agreed to avoid seeking lengthier sentences against the plaintiffs, in part because Mr. Jorgenson seemed very contrite and agreed to give statements in press releases apologizing for his role.

In his closing comments to The Seattle Times, he states:

I am sorry.  It was just greed. I was focusing too much on the material things. This is an aberration of who I am.  I’m hoping that this mess I’ve created can be my message.

I made some stupid, stupid decisions that have put my future, and the future of my family, in jeopardy.  If this is God’s way of getting the greed out of my heart, then this is good.  This is what I want to happen.

Daniel M. Hawke, chief of the SEC Enforcement Division's Market Abuse Unit and director of the SEC’s Philadelphia Regional Office, adds in an SEC press release:

Abusing access to Microsoft’s confidential information and generating unlawful trading profits is not a wise or legal business model for starting a hedge fund.  We thwarted the misguided plans of Jorgenson and Stokke as they sought to illegally profit at others' expense.

Brian Jorgenson
Brian Jorgenson said his conviction was necessary for God to free him of his greed.
[Image Source: LiveMint.com]

In court, prior to his sentencing, Mr. Jorgenson stated:

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.

Mr. Jorgenson, who just had his fourth child -- another girl -- last year will have to rebuild his career and find a new way to provide for his family when he gets out of prison sometime in the next couple years.  He was terminated from his coveted position at Microsoft after an internal investigation for violations of Microsoft's zero-tolerance policy with respect to insider trading.

Sources: FBI, SEC [PDF], The Seattle Times, Reuters





"I'm an Internet expert too. It's all right to wire the industrial zone only, but there are many problems if other regions of the North are wired." -- North Korean Supreme Commander Kim Jong-il













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