Daniel Feussner, a mid-level Microsoft engineer who led one of Microsoft's .net voice recognition technology projects, was arrested after an FBI probe uncovered a scheme in which he allegedly ordered products through Microsoft's internal purchasing programme and sold them on the street.
According to court papers, Feussner used his earnings to acquire a lavish car collection, a yacht, expensive watches and diamond jewellery.
He is being charged with 15 counts of wire, mail and computer fraud and could face a maximum of five years in prison and a $250,000 fine for each charge.
Microsoft said, "We take employee theft very seriously and realise the effects it can have on the value we provide our customers and shareholders.
"We have a number of internal measures in place to identify theft and work very closely with the appropriate authorities on these matters."
Feussner used internal purchase orders to buy high-end server software, which he then sold for cut-rate prices while keeping the proceeds, the complaint alleges.
The FBI said Feussner's arrest was part of a larger probe into illegal use of Microsoft's internal purchasing programme.