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

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