Texas Rep. Pat Fallon Dropped Microsoft Shares Before Pentagon Canceled $ 10 Billion JEDI Contract

Congressman overseeing Defense Department tech spending hits $ 250,000 Microsoft’s stock value two weeks before the Pentagon revealed it was canceling a $ 10 billion contract with the software giant, according to public documents.

US Representative Pat Fallon, a Republican from Texas who sits on a key subcommittee overseeing Department of Defense technology policy, sold between $ 100,000 and $ 250,000 in Microsoft stock on June 21. government disclosures show.

Two weeks later, the Pentagon made the surprise announcement that it was going cancel a $ 10 billion cloud computing contract – called JEDI, or Joint Enterprise Defense Infrastructure – which he attributed to Microsoft in 2019 after the company fought a auction war and legal battle against Amazon.

Fallon, who was elected last year to represent a district in northeastern Lone Star State, is a member of the House subcommittee on Cyber, Innovative Technologies and Information Systems. According to subcommittee website, Fallon and his colleagues have “jurisdiction over Department of Defense policy relating to the acquisition of computer software.”

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If members of Congress or their families trade stocks based on non-public information, they can be sued under the STOCK Act passed in 2012.

In an audio recording that Fallon’s press secretary Luke Ball sent to the Post, the congressman said the deals were actually part of a bet that Microsoft shares would rise. On May 26, he said he bought 1,000 Microsoft shares at $ 250.91. He said he then sold an option called a “covered call option” to another investor and received $ 5,041 in return.

“The option was called about three to four weeks later and at that point I was no longer the owner – the other people made money from the rise in the shares – I no longer owned any Microsoft shares, ”Fallon said.

Fallon added that if he was aware of the Pentagon’s intention to rescind the JEDI deal, he would have bet on Microsoft shares falling rather than rising.

“If I had prior knowledge, why would I have bought stocks and only optioned them upwards and only bet on an uptrend?” Fallon said. “I would have done the other way around, so this is clearly wrong.”

Columbia law professor and securities law expert Joshua Mitts told The Post that the $ 5,041 payment Fallon received in exchange for the covered appeal may have been intended to cover his losses if the Microsoft shares were dropping.

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“It sounds consistent with someone who thinks the share price is going to potentially go down in the future,” Mitts said. “It would be potentially consistent with someone who had negative information.”

Craig Holman, a government ethics lobbyist with the progressive group Public Citizen, said Fallon’s membership on the subcommittee was likely to mean he knew the Pentagon was planning to cancel the contract with Microsoft when it sold its shares.

“The decision to cancel the contract with Microsoft did not come overnight – it’s something the Defense Ministry would contemplate for weeks and weeks,” he added. “It is certainly reasonable to suspect that the Defense Ministry would have informed this committee of its impending decision.”

“It has all appearances that the congressman had access to non-public information and cashed it in,” he added.

A member of Congress who oversees Defense Department tech spending dumped up to $ 250,000 in Microsoft shares two weeks before the Pentagon revealed it was canceling a $ 10 billion contract with the software giant , according to public documents. (iStock)

In a statement, Fallon spokesman Ball replied, “Any accusation that Congressman Fallon acted inappropriately with his routine stock trading is highly speculative and has no basis in the truth. We challenge anyone to provide real evidence to support this ridiculous charge. “

This isn’t the first time Fallon, sworn in just six months ago, has landed in hot water on his stock trading. In June, Insider reported that Fallon potentially violated federal ethics laws by failing to disclose up to $ 17 million in stock transactions within 30 days of their completion.

At the time, a spokesperson for Fallon claimed the congressman was “unfamiliar with how often members of congress are required to file financial information.” Fallon would comply with the disclosure rules in the future, the representative added.

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Other U.S. lawmakers who have come under scrutiny in stock trading include House Speaker Nancy Pelosi (D-Calif.) – whose husband frequently trades large tech stocks – and Senator Ron Wyden (D-Ore.), Who pushed for legislation to boost the domestic semiconductor industry while his wife bought shares in companies that could benefit from it.

To avoid potential conflicts of interest, Holman said all members of Congress and their immediate families should be prohibited from trading individual stocks.

“This is a classic example of why members of Congress should not actively trade in the stock market while in office, particularly in the stocks of companies they oversee in their sub-positions. committee, ”said Holman.

While Fallon’s sale of Microsoft shares may raise ethical questions, it didn’t appear to save him a lot of money. Microsoft stock fell about 0.4% on news of the JEDI contract cancellation and has since rebounded.

On the day Fallon sold his Microsoft stock, the stock was trading at $ 262.63. It has since grown almost 8% to $ 282.95, according to MarketWatch data.