According to public documents, a congressman in charge of the Pentagon’s technology spending dumped up to $250,000 worth of Microsoft stock two weeks before the Pentagon announced it was canceling a $10 billion contract with the software giant.
According to government disclosures, US Representative Pat Fallon, a Texas Republican who sits on a key subcommittee overseeing the Department of Defense’s technology policy, sold between $100,000 and $250,000 in Microsoft shares on June 21.
After a bidding war and legal battle with Amazon, the Pentagon announced two weeks later that it would cancel a $10 billion cloud computing contract — known as JEDI, or Joint Enterprise Defense Infrastructure — that it had awarded to Microsoft in 2019.
Fallon is a member of the House’s Subcommittee on Cyber, Innovative Technologies, and Information Systems. He was elected last year to represent a northeastern district of Texas. Fallon and his colleagues have “jurisdiction over Department of Defense policy related to the acquisition of computer software,” according to the subcommittee’s website.
The STOCK Act, which was passed in 2012, allows members of Congress and their families to be prosecuted if they trade stocks based on nonpublic information.
The congressman said the trades were part of a bet that Microsoft stock would rise in an audio recording sent to The Washington Post by Fallon’s press secretary Luke Ball. He said he bought 1,000 shares of Microsoft stock for $250.91 on May 26. He then sold a “covered call” option to another investor and received $5,041 in return, he said.
“The option was called about three to four weeks later and at that moment I no longer owned — the other people made the money from the stock rising — I no longer owned Microsoft stock,” Fallon said.
If Fallon had known the Pentagon was planning to cancel the JEDI contract, he would have bet on Microsoft stock falling rather than rising.
“If I had prior knowledge why would I have bought stock and only optioned it upward and only bet on an upward trend? “Fallon stated. “I would’ve done the reverse, so it’s provably false.”
Fallon may have received the $5,041 payment in exchange for the covered call to help cover his losses if Microsoft stock fell, according to Columbia Law professor and securities law expert Joshua Mitts.
