Some big think tank did a massive study of all the stock trades placed by some 12,000 CEOs in the U.S. of their company’s stock. I listened to an interview recently, by Geri Willis on Fox Business News, of the man who did this study.
I’ve been unable to find any references to the report on the web, so I will just recount here what I can remember.
The SEC has very strict rules that are supposed to keep senior company officials (who typically own a treasure trove of stock in the firm, often awarded as bonuses; always doled out to skirt tax liabilities) from profiting from “insider information.”
CEOs (and CFOs and everybody else in the know at HQ) are required by law to keep their stock holdings in special accounts within which company stock can be bought and sold only under strictly controlled circumstances.
(All of this also applies equally to bonds issued by the firm.)
According to this statistical study, virtually all of the CEOs made an unusual level of profits on all of their trades of company stocks. That is, if you compare their net profit from their trading activities to the universe of all trading profits in those stocks/bonds, the CEOs fared far better than the average bear.
These CEOs and other high-ranking officials run the company. They damn well know long before the official announcement or conference call or Wall Street rumor sparked by speculators, if profits will be good or bad and when.
They also know how to circumvent the SEC rules applicable to such trades. Sure, there are special accounts, and the SEC keeps an eagle’s eye on activity in them.
However, you can still open and close these accounts; then open and close new ones – during which time you make your trades and nobody is the wiser. It’s all quite legal. It’s just a matter of timing and – BOOM! – you make that killer trade.
It should be illegal for any company executive to own any stock in that company, or at least to buy, sell or trade it under any circumstances except retirement or dismissal.
Clearly it’s just too damn tempting not to make a fast buck, even if you’re already making a $10 million salary.
As far as that goes, why does any CEO with a $10 million salary need to sell some of his company stock? Conversely, if they have enough left over to buy more company stock, they’re being paid too damn much.
Greed, the source of all evil.
