By Bill Rigby
SEATTLE (Reuters) - The U.S. Department of Justice and the Securities and Exchange Commission charged two Seattle men on Thursday with 35 counts of illegally trading on private Microsoft Corp
Brian Jorgenson, a senior portfolio manager at Microsoft, passed information to a former colleague, online day trader Sean Stokke, who executed the trades, according to prosecutors.
According to complaints filed by the department and the SEC, the scheme began in April 2012 when Jorgenson, 32, found out through his job in Microsoft's treasury department that the software company was planning a multi-million dollar investment in the digital business of bookseller Barnes & Noble Inc
He passed that information to Stokke, now 28, who bought options betting that Barnes & Noble stock would rise. It jumped about 50 percent when the investment was announced in late April, reaping Stokke profit of more than $184,000, prosecutors said.
Stokke, who had previously worked with Jorgenson at an asset management company, then shared his profits with him via envelopes stuffed with $10,000 in cash, according to the charges, which resulted from probes by the Federal Bureau of Investigation and the SEC.
The pair repeated a similar process twice more in the following 18 months, prosecutors said, by buying options on Microsoft stock or an exchange-traded fund prior to earnings that Jorgenson knew would surprise Wall Street.
Together, the two men took in another $208,000 in profit from the trades, according to the SEC complaint, which indicated they planned to start their own hedge fund.
The Justice Department's insider trading charges are criminal and could result in up to 20 years in prison and $5 million in fines for both men. The SEC's charges are civil and call for financial penalties and the return of illegally gained profit.
"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," said Daniel Hawke, chief of the SEC Enforcement Division's Market Abuse Unit.
Microsoft said it had already fired Jorgenson.
"Our company has zero tolerance for insider trading. We helped the government with its investigation and terminated the employee," a Microsoft representative said in an emailed statement. Barnes & Noble had no comment.
(Reporting by Bill Rigby; Editing by Leslie Gevirtz, Richard Chang and Dan Grebler)