The skyrocketing share prices of GameStop, BlackBerry, and other companies generating pay days for some “YOLO” members Reddits Wallstreetbets forum deserve a godsend for corporate insiders too.
As of January 1st, executives at BlackBerry and GameStop have been selling shares for a total of more than $ 22 million. They’ve also received a big boost lately from the laid back collective of amateur traders on social media who have tirelessly bid for the companies’ stocks, at least some of whom have stated that their mission is to bring profits from Wall Street to Main Redirect Street.
There is no allegation of improper insider trading in connection with any of the deals. Several experts told CBS MoneyWatch that they see no evidence that insiders and executives from companies that recently sold GameStop and BlackBerry stock got it wrong.
A person familiar with the share sales told CBS MoneyWatch that GameStop has been trying for the past few days to prevent executives and insiders from selling additional shares.
Executives and insiders left the company at the same time Wallstreetbets attendees urged their members to track down the inventory. Robinhood, a popular trading app among Wallstreetbets investors, this week temporarily blocked dealers from buying more shares in GameStop. The ban waspartially canceled on Friday.
Executives tend to trade stocks through preset plans to avoid potentially trading inside information, which is illegal. However, any reference to the dealings in the latest filings filed by executives with the Securities and Exchange Commission does not imply that the recent BlackBerry and GameStop stock sales were via these so-called 10b5-1 plans. This suggests that none of the trades were planned in advance.
“Pay for luck”
Perhaps more importantly, stock options and other stock awards are designed to align executives with other investors – in short, corporate executives are supposed to be paid for their performance in building viable businesses over the long term. Experts tell CBS MoneyWatch that what many consider to be reckless speculation through social media is highlighting problems with executive pay.
“It’s a godsend,” said Benjamin Golez, Associate Professor of Finance at the Mendoza College of Business at Notre Dame University.
Three BlackBerry executives paid out nearly $ 1.7 million in shares in the company last week. One of the executives, Steve Rai, BlackBerry’s chief financial officer, has sold all of his shares in the company despite having untransferred options that could convert into shares in the future.
BlackBerry stock traded around $ 5.50 before becoming the talk of the town on the Wallstreetbets forum. At that price, the three executives’ shares would have been worth approximately $ 700,000. The resulting frenzy sparked by Wallstreetbets added $ 1 million to the total value of their stocks.
The Wallstreetbets insurgents could be an even bigger godsend for BlackBerry CEO John Chen. As part of his 2018 compensation package for joining the software company, Chen could receive a one-time cash bonus of $ 90 million if BlackBerry stock trades above $ 30 for ten consecutive days at any time before the end of 2026.
On Wednesday, stocks of BlackBerry, which lost more than $ 800 million in the past four quarters of reporting, approached that magical $ 30 number, hitting $ 25, though they have since moved to around $ 14 have withdrawn.
BlackBerry did not respond to a request for comment on the sale of executive shares. However, a BlackBerry spokesperson told the Wall Street Journal that executives sold their shares during a window of business permitting.
$ 20 million richer
The bank accounts of four directors of troubled retailer GameStop have also benefited from the Reddit robbers. GameStop has lost nearly $ 1.6 billion in the past three years. Sales recently fell 30% and there are currently 1,000 or about 20% of all stores being closed. Still, the company’s shares rose from around $ 17 at the start of the year to $ 315 on Friday.
As of the start of the year, four members of GameStop’s board of directors raised $ 20 million from the sale of company shares. One of the sellers was Kurt Wolf, a money manager and former management consultant who joined GameStop’s board of directors last year. Hestia Capital, Wolf’s mutual fund, unloaded more than two-thirds of its stake in GameStop in January, bringing in just over $ 17 million for Wolf and its clients.
GameStop has not returned requests for comment on executive stock sales. Through a spokesman, Wolf declined to comment. A filing with the SEC states that Wolf sold to diversify its fund holdings.
Thomas Gorman, partner in law firm Dorsey & Whitney and a securities law expert who served seven years on the Securities and Exchange Commission, said if he advised the boards of directors of companies whose stocks were offered by Wallstreetbets dealers, he would say so Your purpose is to ask executives not to sell while the stock appears to be artificially elevated.
However, Gorman also stressed that executives who sell stocks don’t break rules. Company boards cannot prevent executives from selling into a sudden stock price, provided the profits are not related to inside information.
“This is information from outside,” he said.
The problem is that stock compensation is designed to match executives to the general assets of the company. At GameStop and BlackBerry, executives and insiders seem to be benefiting from the frantic speculation in company stocks – no real improvement in their business.
“Boards can use their faceoffs and tell their executives that it really isn’t a smart time to cash out their stocks,” Gorman said. “But that doesn’t mean the executives sitting on all of these stocks will listen.”
