Goodbye Backdating, Hello New Executive Stock Scandal


Sooner or later executives are going to realize that cheating the system to buy/sell stocks based on insider information will always get them busted. Just when you thought the backdating thing was winding down, a new piece of research indicates that 10b5-1 plans might be manipulated by some executives. The SEC is investigating.

Alan Jagolinzer, an assistant professor at Stanford University's Graduate School of Business, analyzed the trading patterns of executives enrolled in 10b5- 1 plans over a five-year period. He found that the plans tended to sell after good news and ahead of bad news. The upshot: a trading profit 6 percent better than that of uninformed investors.

On average, Jagolinzer says, there is "evidence of 10b5-1 sale transactions and subsequent underperformance of the stock." Does this mean executives are manipulating 10b5-1? "My paper can only identify an empirical pattern," he says.

Selling stock is much more common than buying, for executives, so this may turn out not to be a scandal after all. But corporate executives are gaining quite a reputation for stock manipulation, so I wouldn't be surprised if the SEC and related parties are assuming guilt.

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Here's a thought… what would happen if they took the time and energy they put into manipulation and cover up, and used it to focus on their customers?