Microsoft (MSFT) Keeps Investors In The Dark On SEC Investigations

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Microsoft (MSFT) Keeps Investors In The Dark On SEC Investigations by Probes Reporter

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Microsoft Corp. $MSFT

P.R.’s Perspective:  We are puzzled, if not troubled, that Microsoft elected to not disclose even one of three SEC probes we identified from the recent past.  For a lot of reasons, this is bad for investors.

The Facts: One of Microsoft’s undisclosed SEC probes ended in Oct-2014.  It was formal, and involved questions related to internal controls and the auditor. Another, also closed, lasted almost two years.  We don’t know what that one was about.  The third was/is an FCPA probe that was first widely reported in mainstream media in early 2013, but never specifically disclosed by the company itself.  That one may be ongoing.

In Apr-2015, we wrote of at least two undisclosed SEC investigations of Microsoft.  At the time one was closed the other was confirmed as on-going.  This was based in part on a letter from the SEC dated 09-Mar-2015.  About a year earlier, in May-2014, the SEC had similarly confirmed Microsoft’s involvement in on-going enforcement proceedings that were undisclosed at the time.

The SEC also informed us that, “Microsoft Corp. was listed in the search results In the Matter of Microsoft Corp, which opened on August 30, 2012 and closed on July 29, 2014.”

In a letter dated 04-Jun-2015, the SEC later informed us, “Research in our database index indicates that Microsoft Corporation was listed in two Matters dated between July 2012 and October 2014.”

These responses represented a change from Jul-2012 at which time the SEC it found no investigative records on this company.

We now have six pages of records on two now-closed SEC investigations of Microsoft (All documents referenced here are available to our premium subscribers.  They are posted with this report at our website,  We have also assembled data on a third undisclosed SEC investigation of Microsoft.

Here’s what we know –

Undisclosed Probe #1:  We now have a copy of a formal order of investigation sent to Microsoft on 29-Jul-2013.  We also have a one-page Case Closing Report[1] showing this investigation ended 07-Oct-2014.

The formal order shows the SEC was focused on Microsoft’s internal controls.  The SEC specifically spoke to whether the company, “may have taken or may be taking action to coerce, manipulate, mislead, or fraudulently influence the independent public or certified public accountant engaged in the performance of an audit or review of Microsoft’s financial statements required to be filed with the Commission.”

Undisclosed Probe #2:  The SEC released to us a separate one-page Case Closing Report dated 03-May-2014.  It appears this Case Closing Report related to the probe which the SEC said, “… opened on August 30, 2012 and closed on July 29, 2014.”  (Due to internal systems lags and delays, the dates on SEC Case Closing Reports don’t always synchronize perfectly with what’s reported to us from searches of their records.)

We otherwise have no idea what this nearly two-year SEC investigation was about.  It too was never disclosed.

Undisclosed Probe #3: On 19-Mar-2013, the Wall Street Journal ran a story regarding a joint SEC/DOJ FCPA investigation of Microsoft.  See, U.S. Probes Microsoft Bribery Allegations (link is external)

That same day Microsoft posted its response in a corporate blog generally not prominent to the investing public. See, Our Commitment to Compliance (link is external)

Though initially reported as otherwise, the company’s statement never actually acknowledged the existence of any investigation.  In fact, per the FCPA Blog, a public relations firm representing Microsoft said, ‘Microsoft did not confirm whether these investigations are actually taking place.’

Company filings were equally silent in this regard.  None of the documents or information released to us from the SEC on Microsoft appears related to this investigation; that is, it may still be on-going and, thus, no records would yet be released.

In Apr-2015, the FCPA Blog continued to list Microsoft (link is external) as a company that was, “subject of an ongoing and unresolved FCPA-related investigation.”  We do not have data or company disclosures to independently corroborate this statement.

Analyst Observations:  The consistent and complete absence of disclosures from Microsoft regarding three SEC investigations we found here leaves us concerned for the following reasons:

  1. Microsoft’s pattern of sitting on SEC probes is a troubling disclosure practice. It could reveal a company that holds investors in contempt, views itself as above it all, and/or, has a disclosure threshold, perhaps, much higher than is best for investors.
  2. At least one of the undisclosed probes was formal and accounting-related.  Fortunately, this one lasted only 15 months, which we prefer compared to those that fester on for years.  Nonetheless, the unknown exposure this put upon investors is entirely unacceptable.
  3. Microsoft is not being straight with investors by choosing to not tell them about SEC probes.  We have reviewed thousands of disclosures related to SEC investigations, internal reviews, and other types of regulatory activity. Based on our expertise and experience, we are confident in warning investors that there is a lot of information that Microsoft is keeping from investors regarding its SEC exposures.
  4. By solely using a company blog for speaking to an SEC/DOJ investigation, Microsoft effectively buried a material risk factor.  That feels willfully evasive, if not slippery.

At a time when Microsoft easily could have acknowledged the existence of the SEC/DOJ’s FCPA probes, it instead chose to use an out-of-the-way blog to give its response to the Wall Street Journal article.  Why did they do that? Further, that obscure blog posting acknowledged nothing.  We just don’t get it.

The company easily could have – and we say should have – made the same announcement via press release or even in an 8-K.    One benefit to using obscure places to talk about potentially material exposures is that no one can easily find them later.  That may have been Microsoft’s intention.  We saw Cisco use a similar ploy over the Christmas holiday in 2013[2].  Our research says it worked for Microsoft too.  It took quite a bit of effort for even us to track it down.

To learn more on our process and what our findings mean, click here

Notes: The SEC did not disclose the details on investigations referenced above. The SEC reminds us that its assertion of the law enforcement exemption should not be construed as an indication by the Commission or its staff that any violations of law have occurred with respect to any person, entity, or security.   New SEC investigative activity could theoretically begin or end after the date covered by this latest information which would not be reflected here.

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[1] If you’ve not seen one, SEC Case Closing Reports amount to little more than cover pages for the real reports the SEC adamantly refuses to release on its closed probes.  Those are called Case Closing Recommendations.  They tell you the reason the investigation was opened, the work performed, and conclusions reached.  The Case Closing Report merely gives name of the investigation and its closing date.

[2] “Ethics and integrity are part of our DNA and ingrained in our culture and the way we conduct every aspect of our business.”   – Roxane Marenberg, Deputy Counsel for Cisco (7:11 pm EST, 23-Dec-2013), asserting Cisco’s commitment to ethics within the very same off-the-radar blog posting her company first used to disclose a Foreign Corrupt Practices Act probe.  Nothing showed up on this in formal SEC filings until the 10-Q filed 20-Feb-2014. Only then did media widely report on the disclosure.

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