There is a fascinating article in the Wall Street Journal raising questions about preset trading plans by company insiders. It suggests that some executives are benefitting when sales happen quickly after the plans’ adoption. It also says academics and the SEC say some corporate insiders might be using nonpublic information to game the system.
This article, written in the Wall Street Journal by Tom McGinty and Mark Maremount features some superb research and writing and detailed analysis based on data gathered by these two WSJ writers. It references, among others Plug Power Inc. Chief Executive Andrew Marsh and well-timed stock sales by him which apparently needed $36 million by selling 40% of his holdings in an automatic trading plan. Having just learned about this kind of investing, I read that an automatic trading plan relates to automated trading systems that run through a server-based trading platform. These platforms frequently offer commercial strategies for sale so traders can design their own systems or the ability to host existing systems on the server-based platform.
According to the Journal, Marsh’s plan had been set up only the month before. And shortly after he sold, a string of negative company announcements sent the fuel-cell maker’s shares plunging—down 60% over three months.
The writers conducted an analysis of 75,000 prearranged stock sales by corporate insiders, using a compilation of the data. This revealed that about a fifth of them occurred within 60 trading days of a plan’s adoption. These trades are far more profitable but the question remains is whether any of them were tweaked through insider trading. According to the article, there is a pending shareholder lawsuit alleging that Mr. Marsh xxploited an inflated stock price. I will read that lawsuit and report more tomorrow. Stay tuned and kudos to these two Wall street reporters who may have caught on to a broader issue.
Jeffrey Newman is a whistleblower lawyer with the firm Newman & Shapiro. Jnewman@newmanShapiro.com. 617-823-3217