JDS insiders reaped $1-billion
Officials got huge gains from stock sales
By CAROLINE ALPHONSO
INVESTMENT REPORTER, The Globe and Mail
Monday, August 26, 2002 – Print Edition, Page B1
Fourteen JDS Uniphase Corp. insiders, including chief executive officer Jozef Straus, racked up more than $1-billion (U.S.) selling company stock during the past 3½ years, according to a tally by The New York Times.
"That is astonishing and unconscionable," Dennis Gartman, a veteran trader and publisher of an influential daily market newsletter in Suffolk, Va., said in an interview with The Globe and Mail.
Fibre-optic parts maker JDS, based in Ottawa and San Jose, Calif., was among 16 companies listed in which executives, and sometimes their relatives, made millions of dollars, often by selling the stock just before profit predictions were proved wrong, the Times reported.
Among JDS executives named in the report, former chief executive officer Kevin Kalkhoven had net proceeds -- stock sales minus the cost of exercising stock options -- of $245.9-million, while Mr. Straus pulled in about $150-million in share sales over the past 42 months. They ranked among the top 10 beneficiaries in the listing.
JDS officials were not available for comment yesterday. The New York Times used data compiled by Thomson Financial and circulars from the companies.
The telecommunications industry, which includes Canadian giants Nortel Networks Corp. of Brampton, Ont., and JDS, has been battered for almost two years as customer spending and access to capital have tumbled. Shares of JDS, for example, peaked at just above $200 (Canadian) in early 2000. It closed on Friday at $5.12 on the Toronto Stock Exchange.
Nortel executives weren't on the list.
Some industry observers, such as Mr. Gartman, say insiders cashing out is one indication that they don't have much faith in the company.
"If you believe in your company, you ought to be holding your shares," he said.
Among executives, directors and other insiders who benefited from selling company stock was Philip Anschutz, director and chairman of the executive committee of financially troubled Qwest Communications International Inc.'s board. He ranked at the top of the list, with net proceeds of $1.5-billion (U.S.). He was followed by former AT&T Corp. board member John Malone, who had net proceeds of $340-million.
Meanwhile, John Chambers, chief executive officer at San Jose-based Cisco Systems Inc., was among the top 10 executives, with net proceeds of $223-million. In total, 13 executives, directors and insiders of Cisco benefited before the technology bubble burst, selling stock to collectively make more than $700-million.
Executives at Comverse Technology Inc., Nextel Communications Inc. and McLeodUSA Inc., the second-largest independent directory publisher in the United States, also ranked among the top 10 beneficiaries.
"Should we be surprised? No," Mr. Gartman said. "Is it wrong that they sold that much? Absolutely."
At the same time, Mr. Gartman doesn't feel a great deal of pity for shareholders, many of whom hoped that stock prices would recover. "Nobody made them stay," he said. "I'm a believer that you should put stops in on trades."
Nonetheless, when executives sell that many shares and reduce their positions drastically, "it does lead me to believe that something was remiss and that one would have wished they would have done otherwise," Mr. Gartman said.
Bill Dimma, author of a new corporate governance book Excellence in the Boardroom, said he's found the excessive number of options granted over the past couple of years and the exercising and sale "very discouraging and very upsetting."
Mr. Dimma is a believer that option plans should be changed. He believes a company should outperform its peer group or meet internal targets before options are handed over to the executives.
He said executives who made vast sums of money over the past few years did so as a result of excessive option grants. "They were free to sell at the peak of the market, and insiders certainly have a better idea of where that peak was than anybody else," he said.
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