Microsoft Xbox 360 exec sold $6.1M in shares before woes disclosed

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Conker

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Microsoft Xbox 360 exec sold $6.1M in shares before woes disclosed
 The company has announced plans to extend the warranty on the device

 Gregg Keizer
 Computerworld
 Updated: Jul 16, 2007 12:59 PM
 Weeks before he announced an "unacceptable number of repairs" to the Xbox 360, the Microsoft executive in charge of the video game console sold $6.15 million worth of company stock, or about 20% of his holdings.

According to regulatory filings with the U.S. Securities and Exchange Commission (SEC), Robbie Bach, president of Microsoft's entertainment and devices division, sold 200,000 shares in four transactions between May 3 and May 30. The total take: more than $6.1 million.

Late Friday, a Microsoft spokesman denied any connection between Bach's stock sales and the disclosure of Xbox reliability issues.

On July 5, Bach was one of two Microsoft executives who spelled out the problems with the Xbox 360 to financial analysts and reporters. The game machine's design, Bach said, was defective. "Over the past couple of months, the number of repairs for the Xbox 360 console have been unacceptable to us," he said during a telephone conference call.

To handle the influx of customer complaints, Microsoft said it was immediately extending the Xbox 360's warranty from one to three years for any problem diagnosed with the three flashing lights error message, dubbed the "red ring of death" by users. To pay for the anticipated repairs, and to evaluate and fix systems still in inventory, Microsoft will take a charge of more than $1 billion against earnings for the quarter that ended June 30.

Also during the conference call, Bach said that Microsoft had been aware of the Xbox 360 problems for several months. "This set of issues wasn't visible at all for the first year and more," he said. "[But] the past couple of months, we've seen a significant increase in call volume, repair volume and attention from people."

Before his May moves, Bach last sold shares Aug. 31, 2006, when he disposed of 40,710 shares worth just over $1 million. But although top-tier executives often file scheduled sell plans -- dubbed "trading plans" in the vernacular -- to protect themselves from accusations of insider trading, Bach's May sales were not under such a plan.

Still, Bach should be given the benefit of the doubt, said Ben Silverman, director of research at InsiderScore, an insider trading intelligence service. "There's so much scrutiny of Microsoft that it would be very surprising if there was some kind of questionable insider activity," said Silverman.

Another type of trading plan, noted Silverman, doesn't require a public filing. These plans, which fall under the SEC's Rule 10b5-1, let companies set a trade window during which executives can sell (and buy, though that's rare) shares without restrictions. "It appears that there was a trading window open in May at Microsoft," Silverman added, citing sales by several other executives, including Chairman Bill Gates, General Counsel Brad Smith and the head of the Windows division, Kevin Johnson. "There were no insider sales in April and March," he said, intimating that the timing may not have been up to Bach.

Microsoft's share price was little affected by the news of the Xbox 360's failure rate and the associated $1 billion charge. The day after the announcement, the price closed down just 2 cents. As of yesterday, it had recovered to $30.07, up 8 cents since the July 5 warranty change. Bach sold his shares in May at an average price of $30.73.

Friday night, Microsoft spokesman Eric Hollreiser issued a statement about Bach's transactions. "Robbie Bach's past trading is completely unrelated to last week's announcement extending our Xbox 360 warranty," said Hollreiser in an e-mail. "Microsoft executives sell shares for a variety of reasons, the most common being portfolio diversification. Robbie continues to hold a significant stake in Microsoft and remains confident in the long-term success of the company."
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Microsoft is always in denial it seems like just like sony then like sony they say it was true like the failures and stuff. I think they knew their stock would lower but it looks like it didn't that much. lol next time we see a giant mass of stocks being sold again...expect bad news ;).
 
Conker said:
Microsoft is always in denial it seems like just like sony then like sony they say it was true like the failures and stuff. I think they knew their stock would lower but it looks like it didn't that much. lol next time we see a giant mass of stocks being sold again...expect bad news ;).
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Like what like?
 
That's the type of shit Martha Stewart went to jail for. Insider trading. Hope this guy has a good lawyer.
 
Like what like?
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lol i what i meant was bad news for them but good news for us. Like what happened when they said it would cost them a billion dollars to fix all the consoles under the 3 year warranty. :)
 
If this was insider trading he'll be punished appropriately and at that point it becomes news. Up until then it's just a guy selling some of his many millions of dollars worth of stock.
 
Psychotext said:
If this was insider trading he'll be punished appropriately and at that point it becomes news. Up until then it's just a guy selling some of his many millions of dollars worth of stock.
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QFT. This happens all the time...and as was noted, the stock didnt even move in price. Ugh...
 
VoodooChi|d said:
It doesn't matter if you profit from your illegal decisions. They're still illegal...
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Correct, but the whole point of insider trading is to prevent people with inside knowledge of a company from buying and selling stocks in anticipation of their movement. If the stock doesnt move, then I dont see how this even matters.
 
Spaceman_Spiff said:
Correct, but the whole point of insider trading is to prevent people with inside knowledge of a company from buying and selling stocks in anticipation of their movement. If the stock doesnt move, then I dont see how this even matters.
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exactly
 
Spaceman_Spiff said:
No, its more like being charged/arrested/whatever with kidnapping when someone isn't actually kidnapped.
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Insider trading does not have to reflect impact on the company bottom line, it is about the individual's assumption of future company action negatively impacting stock and the individual using that information in a manner to benefit themselves. The intent was there. Trying to claim no crime was committed because MS didn't take a stock hit is incredibly absurd.

There are all manner of crimes where intent is the same as actually having carried out the plan. I suggest many of you wake up to reality, your arguements laughable.

Planning to blow things up: Hey guess what? Illegal
Planning to kill people: Hey guess what? Illegal
Planning to kidnap people: Hey guess what? Illegal
and on, and on, and on...

Sure, you might not get as extensive a punishment because you didn't manage to carry through with the crime, but you DO get punished.
 
Also, many you forget, that higher ups in companies stick to a schedule on when they can actually sell. I do not know MS's exact schedule, but I do believe he is not selling in that window so if he signed (which most major companies will require) that agreement, he can be punished.
 
Conker said:
Microsoft is always in denial it seems like just like sony then like sony they say it was true like the failures and stuff. I think they knew their stock would lower but it looks like it didn't that much. lol next time we see a giant mass of stocks being sold again...expect bad news ;).
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I got frustrated with all the "likes" that I could not finish what was written.
 
Ethug said:
Insider trading does not have to reflect impact on the company bottom line, it is about the individual's assumption of future company action negatively impacting stock and the individual using that information in a manner to benefit themselves. The intent was there. Trying to claim no crime was committed because MS didn't take a stock hit is incredibly absurd.
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If you don't look at the bottom line, how can you determine whether or not something is bad news for a company whose sole purpose is to make money? Maybe the stock price is holding steady because investors have confidence that this is the correct financial decision for the long term future. If a $1 billion dollar "loss" means a massive return in future sales and roylaties then this isn't necessarily bad news. I'm not saying one way or another that it is the right move financially, but its certainly possible.
 
People are making this into bigger news than it should be. I work in the financial industry and I'll be surprised if he's fined or reprimanded for this.

Microsoft is a company with a 288 billion dollar market cap. A one time billion dollar write-off from one of their divisions isn't enough to send the stock into a freefall, not even close. Robbie Bach is most likely aware of this as well.

The report I read said that he hadn't sold any of his own stock in a certain period of time, not hat he didn't follow company guidelines on when he is able to sell. If he was nearing the deadline or just felt like selling doesn't matter either.

The SEC should know that this is going to cost more money and time to investigate than is worth it, even if he did insider trading, because the net outcome had no effect o the company's stock.
 
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