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Corporate executives have saved millions of dollars by selling large chunks of shares just before the shares began to perform lower, according to new research that suggests company officials will charge when misfortune is just around the corner. .
When the company’s insiders used pre-established stock trading schemes to quickly sell $ 50 million or more in a single day, the company’s shares returned less than 3.19% the following month and 5 , 75% over the next six months in research by Daniel Taylor, an accounting professor at Wharton School and director of its forensic analysis lab.
The study examined corporate insiders selling shares within 60 days of adopting the so-called 10b5-1 plan.
These plans allow executives, board members and other corporate insiders to sell shares within a predetermined price and price range. They are intended to act as a secure port against insider trading violations by establishing securities transactions that take place. But critics say plans can be programmed to provoke stock sales when it is in the interests of executives.
Taylor is part of a group of academics who say they have found red flags in corporate reporting reports in recent months. His research is gaining attention as the U.S. Securities and Exchange Commission begins drafting a regulation to demand more transparency in insider trading.
In June, Gary Gensler, president of the SEC, dit had asked agency staff for a rule to “refresh” regulations 10b5-1 that were finalized in 2000.
Corporate executives regularly handle sensitive, non-public information and are paid primarily in shares, a combination that “creates a real risk that executive trading may be influenced by insider trading,” said SEC Commissioner Caroline Crenshaw in an interview.
He applauded Gensler’s call for new regulation 10b5-1 i has said previously, companies should disclose when a plan is adopted.
“The most important piece of these 10b5-1 plans is confidence in the markets [and] knowing that this is a fair system and that executives are not just there to make money for themselves, ”he said.
Taylor’s largest stock sales of $ 50 million or more foreshadowed the largest stock price loss in the coming months.
With the protection of Plan 10b5-1 against insider trading violations, “the SEC gave executives a shield and they used it as a sword,” Taylor said.
Last year, concerns were raised about when executive shares would be sold Albert Bourla, CEO of Pfizer, charged shares the same day the company announced positive news about vaccines against Covid-19.
A rise in the price of Pfizer shares resulted in a $ 5.6 million payday for Bourla. The company then said the sale of shares came from a pre-established 10b5-1 plan.
After the sale, a group of senators, including Elizabeth Warren, a Democrat from Massachusetts, called on the SEC to improve disclosure rules. “Misuse of the 10b5-1 plans appears to be creating significant disadvantages for other investors,” Warren and two colleagues said. dit in a letter to the SEC in February.
Research suggests that firms trigger stock sales for executives when they have good news to reveal and stock prices rise.
Joshua Mitts, a law professor at Columbia University, published a paper last year that found that the number and amount in dollars of shares sold as part of a 10b5-1 plan were higher when they went spread good news. The healthcare sector recorded the largest volume of sales quotas when a company broke the good news, he said.
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