The Securities and Exchange Commission (SEC) announced a settlement with former Microsoft manager John E. Hardy III of Redmond, Washington. The SEC accused Hardy of using non-public information to profit from the trading of options. The agency regulates the U.S. financial industry by enforcing federal securities laws related to the trading of stocks, bonds, and options.
In a complaint filed in federal district court, the SEC accused the ex-Microsoft manager of profiting from confidential information in 2013. Hardy worked in the financial planning and reporting department under Amy Hood, then the Chief Financial Officer.
In court documents, the SEC alleged that Hardy obtained information relating to the pending Nokia acquisition by learning of cash flow projections showing a roughly $7 billion hit to Microsoft’s European reserves. The purpose of the cash outflow was not specifically described in the report Hardy viewed, but the SEC alleged that Hardy correctly deduced that the money would be used for the Nokia buy-out.
Hardy then purchased call options on Nokia shares, betting that the stock would rise. The “ill-gotten gains”, as the SEC described them, were estimated at $175,000 after Nokia shares indeed rose after news broke that Microsoft intended to acquire the Finnish giant’s mobile-related assets.
Hardy took a different tack with Microsoft stock. Hardy purchased put options, betting that the share value would fall after allegedly learning that future earnings would fall well below market estimates. The SEC claimed that Hardy viewed an email chain where a PowerPoint file was shared describing that Windows OEM revenue would fall compared to last year. After the information was made public, Microsoft shares fell over 11% on July 18, 2013. The options that Hardy had purchased resulted in a gain of about $9,000, according to the SEC.
John Hardy will pay nearly $380,000 to settle the insider trading allegations without admitting or denying any wrongdoing. Hardy also agreed to not serve as a director or officer of a public company for five years. The ex-Microsoft manager will avoid jail time, unlike another ex-Microsoft employee who received a sentence of 2 years back in 2014 for similar allegations, while his stock-trader partner got 1.5 years.
In a statement to the Seattle Times, Microsoft said it “has zero tolerance for insider trading. We helped the government with its investigation and terminated the employee.”