Interesting article on insider sales in today's WSJ. I'm sure longs will be happy to note that Henry Nicholas sold over 500 million in stock, and the total between himself and Samueli is 1 BILLION. Of course Broadcom officials say that's 'normal'...
Regards,
John
Fifty Corporate Insiders Bailed Out
Before the Slump and Made a Mint
By MARK MAREMONT and JOHN HECHINGER
Staff Reporters of THE WALL STREET JOURNAL
You're kicking yourself for not bailing out of tech stocks long ago. You sat by as the price of that once-lofty dot-com just kept sliding, while your retirement kitty shrank with each downward lurch of the market. But you suspect somebody was smart enough to make a mint from the great Nasdaq bubble.
You're right. Meet the $100 million club, an elite group of at least 50 insiders at Nasdaq companies who collected immense fortunes. They each sold more than $100 million of stock in their companies from October 1999 through the end of last year, according to an analysis by The Wall Street Journal and Thomson Financial/First Call.
In many cases, these insiders sold near the high points of stocks that have fallen 80%, 90%, even 99% from their peaks. Some companies had more than one insider who sold $100 million of stock. At one company, Scient Corp. in San Francisco, a single insider collected more money from selling shares during the period than the whole company is worth now.
It amounts to a huge transfer of wealth from ordinary investors to those on the inside, says William Braman, chief investment officer at John Hancock Funds in Boston. "The little old lady in Dubuque, Iowa, with the mutual fund in tech stocks is financing the Internet entrepreneur's mansion on the Pacific Palisades," he says.
The lush proceeds were mostly profit. Insiders at these Nasdaq companies typically didn't have to go out and buy stock at the market price like everybody else, because they were generously supplied with founders' stock -- virtually free -- and options exercisable at low prices. The sales period was chosen, somewhat arbitrarily, to capture the Nasdaq Composite's final runup and then steady slide prior to this year's blowout.
Among those with good timing was the founder of Scient, a consulting company for the Internet, which went public in 1999 at $10 per split-adjusted share and hit $133.75 the following March. During the five quarters through last December, founder Eric Greenberg, 36 years old, sold Scient stock totaling $225 million.
All of Scient now is worth just $130 million, its stock battered by softer technology spending and more competition from traditional consulting firms. At 4 p.m. Wednesday, the shares traded at $1.75. A spokesman says Mr. Greenberg sold stock for "financial diversification" and with the board's approval. He stepped down as chairman last April but remains a director and Scient's largest shareholder, with a 12% stake.
Then there's Marc H. Bell, the 33-year-old chief executive of Globix Corp. He says he sold a third of his holdings for about $129 million because his wife insisted he put away money for twins they were expecting. He did most of the selling in February 2000 within a week of the stock's peak price of $67.44.
The twins were born in April. Globix, a New York Internet company Mr. Bell founded a dozen years ago, closed Wednesday at $3.25, making the whole company worth only about $136 million.
"Who knew?" Mr. Bell says. "Everyone was talking about Nasdaq and a 20,000 Dow. I just had good timing."
Indeed, the insiders who cashed in didn't know the Nasdaq Stock Market was going to plunge the way it has: a 64% drop in the Nasdaq Composite index from its peak on March 10, 2000. Most of them did what any shrewd person would: Take some winnings off the table.
And some insiders rode the rollercoaster up and back down, selling little or nothing. Edward "Toby" Lenk, CEO of online retailer eToys Inc., watched a paper fortune of $600 million evaporate as the company slid into bankruptcy court. He held on to almost every share.
"There were lots of people at eToys and other Internet companies who wanted to build something meaningful, not just make a quick buck," Mr. Lenk says.
Still, overall insider selling hit record levels when the market was hottest. Using a narrow measure -- just the selling of Nasdaq stocks by insiders who file as direct owners -- Thomson Financial/First Call tallied more than $18 billion of sales in the first quarter of 2000. That was more than double the previous record for a quarter, set in 1999's final period.
The list of $100 million sellers is also narrow: It reflects only direct stock sales by insiders, along with, in certain cases, sales by trusts they control. Not counted are scores of other people who reaped similarly mammoth amounts, including many venture capitalists, or insiders at non-Nasdaq companies.
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Big Scores
Some insiders of Nasdaq companies who sold stock between Sept. 30, 1999, and the end of 2000.
Insider Name Title Company Amount Sold Stock decline from High
Eric Greenberg Chmn.* Scient $225 mil. 99%
Naveen Jain CEO Infospace $192 mil. 98%
Bobby Johnson CEO Foundry Networks $272 mil. 96%
Marc Bell CEO Globix $129 mil. 95%
Robert DeSantis Exec. VP Ariba $222 mil. 94%
Gururaj Deshpande Chmn. Sycamore Networks $129 mil. 94%
Henry Nicholas CEO Broadcom $509 mil. 88%
Sanjiv Sidhu CEO I2 Technologies $329 mil. 87%
Jozef Straus CEO JDS Uniphase $152 mil. 85%
Gregory Reyes CEO Brocade Comm. $360 mil. 78%
*Resigned April 2000, still a director
Data: Thomson Financial/First Call; WSJ
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At least a dozen Nasdaq companies hold a special distinction: Multiple insiders sold more than $100 million of stock. The companies include onetime optical-equipment darlings JDS Uniphase Corp. and Sycamore Networks Inc., Internet auctioneer eBay Inc. and software firm Oracle Corp.
One married couple, Theresa Pan and Jing Jong Pan, who founded E-Tek Dynamics Inc., together sold $513 million of their stock in the optical-components company. After they sold those shares, E-Tek was taken over by JDS Uniphase for $15 billion in stock. JDS shares have since slid 81%.
Ariba Inc. takes the prize for most members of the $100 million club: six. Stock in the provider of software for online business-to-business marketplaces soared last year amid a short-lived investor frenzy for B-to-B firms.
The six -- including Chief Executive Keith Krach and Executive Vice President Robert DeSantis -- sold more than $800 million of Ariba shares in all, at prices as high as $150. Ariba shares now trade at $10.19, down 94% from their high a year ago.
Lauren Ames, a spokeswoman for Ariba in Mountain View, Calif., says the executives sold "a small percentage" of their holdings to diversify their investments as part of systematic selling programs. Of the stock's collapse since then, she says: "No one could have predicted what happened."
At Broadcom Corp., some shareholders are fuming about big sales by two insiders. Co-founders Henry T. Nicholas, 41, and Henry Samueli, 46, along with family trusts, sold a total of more than $1 billion of stock in the maker of communications chips in the 15-month period. Broadcom shares have fallen 88% since August.
Shareholder suits filed in federal court for the Central District of California claim that some stock sales by the two and another officer came after aggressive acquisition-related accounting had inflated financial results. The company calls the suits without merit, although Broadcom Wednesday revised its 2000 results, after consulting with outside auditors and the Securities and Exchange Commission about its accounting.
Broadcom spokesman Bill Blanning says that the stock sales by Messrs. Nicholas and Samueli "sound high, which they are," but that the two have sold stock "on a predetermined schedule regardless of the stock price" ever since Broadcom went public three years ago. He says each still has a 13% stake in the Irvine, Calif., company, so they've "left huge amounts of money on the table."
A few insiders cite family reasons for unloading shares, including Vivek Ranadive of Tibco Software Inc. The 43-year-old chief executive sold $173 million of stock last July to pay a divorce settlement, a company spokeswoman says.
Tibco, a Palo Alto, Calif., maker of Internet-related business software, recently said it wouldn't meet first-quarter earnings expectations. Its stock closed Wednesday at $8.94, down from about $115 when Mr. Ranadive sold.
Some big sellers say they have so much faith in their companies they've gone into the open market to buy at today's depressed levels. One is Naveen Jain, founder and chairman of Infospace Inc., a Bellevue, Wash., provider of online directories. It had a brief life as an Internet highflier but is now down 98% from its high a year ago.
Last month, Mr. Jain paid $2 million to buy 500,000 shares. But when the stock was flying high last year, he sold $192 million worth, on top of $203 million worth in 1999.
A spokeswoman for Mr. Jain, 41, says the selling was just "to diversify his portfolio, because so much of his wealth was tied up in the company." |
