Business & Technology: Wednesday, July 16, 2003

Ex-worker admits guilt in Microsoft theft case

By Brier Dudley

Seattle Times technology reporter


A third Microsoft employee charged with stealing software from the company pleaded guilty yesterday to felony mail fraud.

Kori Robin Brown, an administrative assistant in the Xbox division, had been fired last year after Microsoft found some employees were apparently selling software acquired through its internal purchasing system.

The U.S. Attorney's Office alleges Brown ordered more than $6 million worth of database software for company use, then sold it on the side for $50,000 to $100,000 altogether.

More than $32 million worth of software was allegedly stolen and sold outside the company by Brown and two other employees Microsoft reported to the Federal Bureau of Investigation last year.

First to be charged was Daniel Feussner, a flamboyant 32-year-old programmer arrested in December and accused of stealing $9 million in software. He died in February after ingesting antifreeze.

Last month Richard Gregg, a 43-year-old program coordinator from Bellevue, pleaded not guilty to charges that he stole more than $17 million worth of software.

Brown, 31, placed 17 orders for SQL Server software between October 1998 and August 2000 and then "converted the software to her own use and sold it to a third party," according to the U.S. Attorney's Office.

All three were fired shortly after the discoveries, company spokeswoman Stacy Drake said.

"Since identifying the misuse, we've thoroughly examined our internal ordering system and made many adjustments to prevent this from happening again," she said.

Brown, of Spokane, is scheduled to be sentenced Oct. 3. She faces a maximum sentence of five years in prison and a $250,000 fine.

Brier Dudley: 206-515-5687 or [email protected]

Business & Technology: Tuesday, June 24, 2003

Former Microsoft worker allegedly stole $17 million in software, resold it

By Brier Dudley

Seattle Times technology reporter

A second massive employee-fraud case at Microsoft came to light yesterday when a worker was charged in federal court with stealing more than $17 million worth of software from the company.

Richard Gregg, a 43-year-old Windows program coordinator from Bellevue, pleaded not guilty to 62 counts of mail and computer fraud and was released on bail.

Microsoft fired Gregg in December after it found several employees were allegedly ordering software and reselling it on the side for their own profit.

Another employee, Daniel Feussner, was charged in December with stealing $9 million worth of software in a similar scheme. Facing charges carrying up to 20 years in jail, the 32-year-old programmer died in February after ingesting antifreeze.

Gregg and Feussner were not working together, said John Hartingh, executive assistant U.S. attorney in Seattle.

"My understanding is there's not a connection between the two; it's just the fact patterns are almost identical," he said. "Microsoft identified the two about the same time, when they were looking into the problems they were having."

The December crackdown led to other investigations, and there could be one or more additional cases brought to court, Microsoft spokeswoman Stacy Drake said.

Feussner's case attracted attention in part because he spent proceeds on a yacht, a Ferrari and other luxury items he boasted about on a personal Web page.

Gregg, who could not be reached for comment, has a much lower profile.

In the indictment disclosed yesterday, U.S. Attorney John McKay said that Gregg, if convicted, will have to forfeit cash, a condominium, a 1999 Land Rover Discovery and a 2002 BMW M3.

It's unclear how much cash Gregg has in the four bank accounts listed in the indictment.

Also unclear is how he may have used the proceeds of the alleged crime to buy the condominium in the 10300 block of Northeast 16th Street in Bellevue. He bought the condo for $120,000 in 1998, according to a tax affidavit on file with King County.

Microsoft called in the FBI last year to investigate. The company now requires employees to get more approvals from managers before ordering software.

"When we identified this activity last December, we immediately took several steps to ensure this would not happen again and referred Gregg to law-enforcement officials," Chief Financial Officer John Connors said in a prepared statement.

"Since that time, we have been working very closely with the FBI and U.S. Attorney's Office on the investigation and have made changes to our internal ordering system to prevent this from happening again."

Microsoft has an internal product-ordering system known as MS Market, which allows employees to order Microsoft hardware and software, the indictment states.

From January to October 2002, Gregg allegedly ordered 5,436 copies of home and business software such as Windows XP, SQL Server, Exchange and Office with retail prices over $17 million.

They were ordered electronically from Microsoft's network in Redmond and delivered to Gregg from Client Logic, a vendor in Buffalo, N.Y., the indictment states.

"After the software was received, Richard Gregg would not use the software for a legitimate business purpose," the indictment states. "Instead, he would sell and otherwise dispose of the software and retain any proceeds for his own personal use and enrichment."

If Gregg is convicted, each mail fraud count carries maximum penalties of 20 years in prison and a $250,000 fine. Each computer fraud count carries maximum penalties of five years in prison and a $250,000 fine.

The Gregg case will not have a significant effect on Microsoft's earnings, Drake said.

In fiscal 2002, which ended June 30, the company had operating expenses of $16.45 billion and netted $7.83 billion.

Information from The Associated Press is included in this report.

Brier Dudley: 206-515-5687

Local News: Tuesday, February 11, 2003

Man charged with Microsoft fraud dies

By Ian Ith

Seattle Times staff reporter

A former Microsoft manager facing federal fraud charges for allegedly stealing more than $9 million in company software died unexpectedly Friday at a Bellevue hospital while out on bail.

The circumstances surrounding the death of Daniel Feussner, 32, a German-born computer expert who held a Ph.D. in computer linguistics and mathematics, remained under investigation yesterday.

The cause of Feussner's death is unknown until further tests, including toxicology examinations, are conducted, the King County Medical Examiner's staff said yesterday.

Feussner's attorney, Michael Martin of Seattle, said in a statement that Feussner "suffered multiple organ failure" at Overlake Hospital Medical Center, but he declined to elaborate, citing family privacy.

A spokeswoman for Overlake Hospital said the hospital could not confirm that Feussner was ever a patient because of confidentiality rules involving drug, alcohol or mental-illness cases.

His legal troubles aside, Feussner was "an absolutely wonderful, charitable human being who will be dearly missed by a lot of people," Martin said.

In December, Feussner put his Sammamish home up as bond to go free while he faced charges that he obtained expensive Microsoft software through internal-purchasing systems and sold it on the street. He allegedly used the profits to buy a collection of fancy cars, a yacht and expensive jewelry, according to court documents.

Before he was arrested and fired, Feussner had headed Microsoft's search-engine technologies.

He was charged by complaint with 15 counts of wire, mail and computer fraud, which could have cost him up to 20 years behind bars. While on bail, he was ordered to wear an electronic home-detention bracelet.

As soon as Feussner's death certificate is forwarded to federal prosecutors, the case will be closed, said Assistant U.S. Attorney Hugh Berry. "It certainly is terrible," Berry said. "It's a sad situation."

Similarly, Microsoft officials said they wouldn't belabor the allegations.

"We are very saddened by this news, and our hearts go out to Daniel's family and friends," said Stacy Drake, a Microsoft spokeswoman.

Martin said Feussner's family would prefer to remember a devoted husband with a brilliant mind and a sharp sense of humor who made major contributions to search-engine technology.

"He was very, very bright and he had a lot going for him," Martin said.

Ian Ith: 206-464-2109 or [email protected]

Business & Technology: Monday, February 10, 2003

Former Microsoft worker charged in software theft case dies

The Associated Press

SEATTLE — A former Microsoft Corp. employee accused of stealing and reselling software to finance a lavish lifestyle has died at age 32.

Daniel Feussner of Sammamish, died Friday at Overlake Hospital Medical Center in Bellevue. His family said he suffered multiple organ failure and had previous medical problems. No other information was released about his condition.

The King County Medical Examiner's office was awaiting toxicology results before issuing a cause of death.

Feussner was arrested at Microsoft's Redmond campus in December on a federal complaint listing 15 counts of wire, mail and computer fraud. Prosecutors alleged he stole software with a retail value of $9 million from Microsoft and then sold it, using the proceeds to buy diamond rings, a Hummer utility vehicle, a 51-foot yacht, a motorcycle and expensive cars.

He was free on bond. No trial date had been set.

"We are saddened by this news and our hearts are with his family and friends," Microsoft spokeswoman Stacy Drake said.

Assistant U.S. Attorney John Hartingh said the case will not continue, but declined to say whether federal authorities have expanded the investigation. Authorities have not decided what they will do with the property that had been seized as evidence.

At Microsoft, Feussner was a director of operations for US-Speech Engineering Services and Retrieval Technology. The company fired him around the time of his arrest.

Business & Technology: Wednesday, February 05, 2003

Business Digest

After two years, Loudeye's chief executive quits post


SEATTLE — Loudeye, a provider of corporate Webcast services, said Chief Executive Officer John Baker resigned after less than two years and is being replaced by Philip Gioia.

Gioia, a principal at Regent Pacific Management, will also assume Baker's position as president, said Andrew Cullen, a spokesman for the Seattle-based company with an outside firm. Charles Waite, a Loudeye director, will succeed Baker as chairman, he said.

Baker, 43, became CEO in March 2001 and chairman in October of that year. He and Loudeye's board reached a mutual decision for him to resign, Cullen said. Loudeye said sales last year were as much as 10 percent below its previous expectations of $13.5 million to $14 million.

Parkway SuperCenter near Southcenter is sold

TUKWILA — What to do with a thriving retail development that boasts such tenants as Old Navy, Gart Sports and Babies 'R' Us?

Sell it.

Which is what MKB Northwest has done with its Parkway SuperCenter, the big-box shopping center at 17547 Southcenter Parkway. The company said it sold the remainder of the shopping center to Kimco Realty of New York for $88.5 million, which is expected to be one of the biggest retail deals of the year.

MKB redeveloped the 700,000 square foot SuperCenter in 1997 and has been selling portions of the property over the past two years.

Everett developer expands corporate-park construction

EVERETT — More construction is planned at the Quadrant I-5 Corporate Park.

Developer Ned Backus bought just over five acres from Quadrant for $2.1 million. Backus plans to build 75,000 square feet of office and light-industrial space at the business park, which is off Interstate 5 at 135th Street in Everett.

The development's tenants include Premera Blue Cross and State Farm.

Shurgard Europe executive is promoted to president

SEATTLE — Shurgard Storage Centers, a real-estate-investment trust specializing in self-storage operations, said yesterday that it had promoted David Grant to serve as president and chief operating officer effective Aug. 1.

Grant had been executive vice president and chairman of Shurgard Europe, the company said. He first joined Shurgard in 1985 as its U.S. director of real-estate investment.

Icos' rival to Viagra now available in Europe

SEATTLE — Icos, a Bothell biotech company, and Eli Lilly said yesterday the impotence drug Cialis is now available at pharmacies in the United Kingdom, Germany, Denmark, Finland, Sweden and Australia.

Icos spokeswoman Lacy Fitzpatrick said the drug is being priced similarly to Pfizer's Viagra. Cialis is not available in the United States, but the company expects a decision from the Food and Drug Administration this year.

Microsoft disciplines workers over reselling of software

REDMOND — Microsoft said it has taken disciplinary action against an undisclosed number of employees for buying Microsoft software at cost from the company and reselling it for a profit.

Microsoft spokeswoman Stacy Drake declined to comment on the number of workers or the action taken. Microsoft employees can buy software at reduced prices for personal use from a company store and procure programs for business use through an internal system.

The crackdown comes after a midlevel executive in the company's .Net group was accused of ordering and reselling $9 million of Microsoft software in December. Daniel Feussner is free on bond and is facing charges of mail, computer and wire fraud.

Nation / World

Prices of iMac, eMac PCs lowered in bid to boost sales

SAN FRANCISCO — Apple Computer lowered the price of its one-piece iMac and eMac PCs by as much as 13 percent as it tries to boost sales with faster and lower-priced systems.

The company reduced the number of flat-panel iMac computers it sells from three to two, keeping the two best sellers, while knocking $200 off the price of each, said Greg Joswiak, the head of marketing for Apple's hardware division.

Apple will charge $1,799 for a flat-panel iMac with a 17-inch screen and $1,299 for the 15-inch model. Faster processors were added to each machine. Apple cut the price of its one-piece eMac computers to $999 and $1,299, from $1,099 and $1,499, Joswiak said.

Major insurer underestimates claims; company's shares fall

NEW YORK — American International Group (AIG) sent shock waves across the world insurance industry yesterday, as it admitted it had drastically underestimated U.S. liability claims on its books.

The world's largest insurer, American International Group is to take a $1.8 billion charge to pay for heavier-than-expected workers' compensation and executives' liability claims, which have built up over the past few years.

It blamed U.S. courts handing over large awards and a spike in shareholder lawsuits from corporate scandals such as Enron and WorldCom.

Maurice Greenberg, the company's chief executive, suggested that other insurers were suffering from the same problems.

The company's shares fell 6.6 percent, and shares of rivals ACE, Travelers Property Casualty and Chubb — which also announced a small reserve addition yesterday — all fell sharply.

Compiled from Seattle Times business staff and news services.

Local News: Saturday, December 21, 2002

Accused Microsoft manager is released

By Ray Rivera

Seattle Times staff reporter

A former Microsoft engineer accused of swiping $9 million worth of software from the company was released on bond yesterday.

Daniel Feussner, a midlevel manager who headed one of Microsoft's .Net technology projects, put up his Sammamish home as collateral and was ordered to wear an electronic-monitoring bracelet and surrender his passport and all travel documents.

The property has an equity value of $100,000, according to court documents.

The 32-year-old German citizen here on a work visa is accused of ordering products through Microsoft's internal-purchasing program and selling them on the street. He was arrested Dec. 11 after an FBI probe uncovered his scheme. Microsoft fired him the same day.

The accusations stem from an ongoing investigation into current and former Microsoft employees selling high-end applications acquired illegally through the software giant's internal product-ordering system.

The company also is conducting several internal probes "that may result in criminal prosecution and termination of employment," said Stacy Drake, Microsoft spokeswoman. She would not say whether other employees have been fired or suspended as a result of the investigations.

An arraignment date for Feussner has not been set. Asked if his client denied the charges, Feussner's attorney Michael G. Martin said it's too soon to comment.

Feussner nodded and smiled at his wife as he entered federal court yesterday in shackles and a blue prison uniform. His waist-length dreadlocks were loosely pulled into a ponytail.

Asked by U.S. Magistrate John Weinberg if he understood his release conditions, Feussner politely responded in a slight German accent, "Yes, I understand."

According to a complaint filed a day before his arrest, federal authorities say Feussner used his earnings to acquire a lavish car collection, a $172,000 yacht, expensive watches and diamond jewelry.

He is being charged with 15 counts of wire, mail and computer fraud for a scheme that allegedly went from Dec. 3, 2001, to Nov. 25 this year. As of July 31, when the statutes were changed, the penalty for each charge is a maximum of 20 years and $250,000. Previously, the maximum was five years and $250,000.

Prosecutors were uncertain yesterday which penalties Feussner would face.

Assistant U.S. Attorney Hugh Berry said Feussner was not considered a serious flight risk because he has an American wife and most of his assets have been seized.

"And frankly we have very good relationships with Germany, so if he fled there we could extradite him and add additional charges," Berry said.

Feussner's immigration status was uncertain yesterday. Immigration and Naturalization Service spokesman Garrison Courtney said the INS does not discuss individual cases. But he added that in general, an immigrant convicted of a crime could face deportation, even with an American spouse.

Feussner, meanwhile, will begin looking for a new job while he awaits trial, his attorney said.

Ray Rivera: 206-464-2926 or [email protected].

Seattle Times reporter Brier Dudley contributed to this report.

Business & Technology: Thursday, December 12, 2002

Microsoft manager accused of $9 million fraud scheme

By Ray Rivera and Brier Dudley

Seattle Times staff reporters


Daniel Feussner's Web site


For a year, Daniel Feussner lived an extravagant life. He bought a Ferrari, a Hummer, diamond rings — and the crown jewel, a 51-foot yacht.

The young Microsoft manager was so proud of his possessions he displayed them on a personal Web page.

But federal agents allege his newfound wealth was derived from a scheme in which he ordered $9 million in Microsoft software, ostensibly to be used in-house, then sold it on the street at reduced prices.

In a criminal complaint unsealed yesterday in U.S. District Court in Seattle, Feussner was accused of 15 counts of wire, mail and computer fraud. Each count carries a maximum of five years in prison, according to prosecutors.

Feussner, 32, of Sammamish, was arrested at Microsoft's Redmond campus yesterday and made an initial appearance before U.S. Magistrate John L. Weinberg. He is expected to remain in custody until a preliminary hearing set for Dec. 20. Prosecutors then have 30 days to take the case before a grand jury for formal charging, said Assistant U.S. Attorney Hugh Berry.

According to an FBI affidavit accompanying the complaint, the accusations stem from an ongoing investigation into current and former Microsoft employees selling high-end applications acquired illegally through the software giant's Internal Product Ordering (IPO) system.

Feussner, director of retrieval technology, was in charge of the search engines at Microsoft.com that are used by tens of millions of people per month, according to a biography he provided to the Bellevue Breakfast Rotary Club, which he joined this year.

A Microsoft spokeswoman said Feussner was fired yesterday but declined to discuss specifics of the case or his employment history.

"For reasons of privacy it's our policy not to discuss personnel issues," spokeswoman Stacy Drake said.

The complaint alleges that between Dec. 3, 2001, and Nov. 25 this year, Feussner ordered or used his assistant and other employees, including a high-school intern, to order nearly 1,700 business applications through the IPO system.

The applications included Windows 2000, SQL Server 2000 Enterprise Edition and Visual Studio, with retail values ranging from $1,800 to $20,000.

The orders were sent to a Microsoft vendor, Client Logic, in Buffalo, N.Y., which pulled the software from its warehouse in Ohio and shipped the software to Microsoft's Redmond campus. The software was then delivered from the mailroom to Feussner's desk, the affidavit alleges. Federal prosecutors allege that he then sold the software and kept the proceeds.

In June, FBI agents said they saw Feussner exchanging a large box of software for cash in a Fred Meyer parking lot in Bellevue.

According to an FBI affidavit, the agency contacted Microsoft security investigators and began monitoring Feussner and his bank accounts. Last year, one account with Washington Mutual Bank had an average balance of $2,158.92. From Feb. 25 on, the average balance ballooned to $129,774.51, the affidavit said.

Another account with Wells Fargo showed irregular deposits totaling a half-million dollars, none of which appeared to be from "any legitimate income or other legitimate source," the affidavit states.

The big-ticket purchases

Investigators also noted Feussner's purchases. Over a

10-month period beginning in February, Feussner allegedly purchased a $95,000 Ferrari F355 Berlinetta, a $36,000 Jaguar XJ6 and traded in lesser vehicles for a Hummer H1, a Mercedes 500SEL and a $21,000 Harley-Davidson, the affidavit states.

He also bought an $8,000 oval diamond ring, a $2,230 Rolex wristwatch and a $4,000 bracelet.

Then, in August, he put down $65,000 for a 51-foot yacht named the Brazilian Queen, financing the remaining $120,000, according to the affidavit. His Web site lists the yacht at 58 feet.

Drake of Microsoft said the company is cooperating with prosecutors.

"We take employee theft very seriously and realize the effect it can have on the value we provide our customers and our shareholders," she said. "We have a number of internal measures in place to identify theft and work very closely with the appropriate authorities on these matters."

Monitoring expenses has been a challenge at a company where thousands of employees are hired every year and billions of dollars of revenue are received every month. But over the past two years, executives have touted new Web-based systems, including the IPO system, that employees use to order supplies.

Any large-scale theft may have come to light in the past year as the company put more emphasis on controlling costs. With overall technology spending slowing, executives have ordered managers to closely monitor expenses and have given vice presidents greater responsibility for balance sheets.

A Microsoft source said other employees named in the complaint are not suspected of acting illegally. They were apparently following orders from their supervisor, Feussner, to order the software.

Feussner, a native of Munich and an expert in search-engine technology, is known for his outgoing personality and waist-length dreadlocks, which he claimed had not been cut since 1987.

In the past year he joined the Bellevue Breakfast Rotary Club, where he seemed more outgoing and personable than the stereotypical techie, said Steve Goldfarb, a Bellevue jeweler and immediate past president of the club. "He seemed like what I would expect a genius software developer to be," he said.

At Microsoft, Feussner was placed in charge of the company's online search engines earlier this year. He also was developing a new search-engine platform using artificial intelligence to identify and index content, according to a report he gave to the Rotary Club when he hosted a club meeting at Microsoft in April.

Before coming to Microsoft, Feussner worked at the AltaVista Web search engine, earned a doctoral degree and taught at the University of Munich in Germany.

On his Web page, Feussner describes himself as "The Dude" and says that before he discovered computing, he wanted to become a rock star or a motorcycle mechanic.

"Maybe I'll do this later," the Web page states.

The page includes a camera for monitoring his cat, Mr. Mietze Lebowski, and has photos of his yacht, cars and other treasures.

"You figured that I like big boy's toys by looking at some of the pictures," he wrote. "I just can't resist."

Ray Rivera: 206-464-2926 or [email protected]

Brier Dudley: 206-515-5687 or [email protected]