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The recent Kodak situation (where a huge options bonus was given to their CEO the day before announcing a major government loan) goes to show how little some ex

The recent Kodak situation (where a huge options bonus was given to their CEO the day before announcing a major government loan) goes to show how little some executives are worried about insider trading prosecution. I've been working on a dashboard to track insider transactions at S&P 500 companies, you can check it out at https://www.quiverquant.com/sources/insidertrading https://www.quiverquant.com/sources/insidertrading

kortilla 6y ago
Giving a CEO options isn’t really insider trading. CEOs constantly receive stock and stock price based bonuses.
- chrisbolt 6y ago
  > CEOs constantly receive stock and stock price based bonuses. "a huge options bonus" https://www.bloomberg.com/news/newsletters/2020-08-03/money-stuff-now-an-app-can-pitch-mergers https://www.bloomberg.com/news/newsletters/2020-08-03/money-... > Giving CEO James Continenza options to buy 2 million shares at prices up to $12, when the stock was trading at $2.62, the day before an announcement that sent the stock up to $21.85, seems (1) generous and (2) well-timed.
  - shajznnckfke 6y ago
    Assuming the options grant was coordinated with the loan deal (so we don’t need any innuendo about the suspicious timing), would that be insider trading? Couldn’t a company explicitly give a bonus to an executive as a reward for winning some business? Matt Levine makes a similar point in the article you linked.
    - take_a_breath 6y ago
      ==Assuming the options grant was coordinated with the loan deal (so we don’t need any innuendo about the suspicious timing), would that be insider trading?== We shouldn’t assume that considering the Kodak gave a completely different reason: “The options were granted to shield Continenza’s overall stake in the company from being diluted by a $100 million convertible bond deal clinched in May 2019 to help Eastman Kodak stay afloat, according to the person’s account.”
Rebelgecko 6y ago
Im not super familiar with options so maybe I'm misunderstanding how the grant works. But the CEO hasn't actually traded anything. Isn't that a prerequisite for insider trading?
- sfblah 6y ago
  The key is when the options are priced. I believe even Steve Jobs got in trouble for that 15 or so years ago.
  - godzillabrennus 6y ago
    Backdating options was a scandal in SV about a decade ago at all the big firms.
  - Lazare 6y ago
    Option pricing is a separate issue; you can certainly do it wrong and get in trouble, but it's not insider trading either way.
arminiusreturns 6y ago
Wow I love that dashboard! Well done. Are you trading off this at all?
Lazare 6y ago
There was a lot weird about that deal, but you've highlighted the one thing that is pretty clearly not insider trading. Had the CEO bought a bunch of shares, that would very possibly be insider trading, because he is (presumably) trading on information that doesn't belong to him, but belongs to the company, ie, the board. In the US, insider trading is a crime about misappropriation of information. But the board can do whatever they want. They can grant the CEO a large cash bonus, at any time, for any reason or no reason. And they can grant him a chunk of valuable options. And they can certainly do so because of a soon-to-be-announced deal, because again, they're the ones who "own" that information. Now, why the board might have thought that was a good idea, and to what extent the board was fulfilling their fiduciary duty to the stockholders is a separate question. Giving employees who do a good job a bonus is pretty routine, but on the other hand, just randomly giving the CEO an (effective) giant sack of cash is very much not routine, and there's a lot of practical reasons why companies do not usually do that. "It might violate insider trading laws" is, however, not one of them. :)
- mc32 6y ago
  Also, it seems they are focused more on preventing shady companies from scamming mom & pop investors (the old fly by night ops).

kortilla 6y ago

Giving a CEO options isn’t really insider trading. CEOs constantly receive stock and stock price based bonuses.

chrisbolt 6y ago
> CEOs constantly receive stock and stock price based bonuses. "a huge options bonus" https://www.bloomberg.com/news/newsletters/2020-08-03/money-stuff-now-an-app-can-pitch-mergers https://www.bloomberg.com/news/newsletters/2020-08-03/money-... > Giving CEO James Continenza options to buy 2 million shares at prices up to $12, when the stock was trading at $2.62, the day before an announcement that sent the stock up to $21.85, seems (1) generous and (2) well-timed.
- shajznnckfke 6y ago
  Assuming the options grant was coordinated with the loan deal (so we don’t need any innuendo about the suspicious timing), would that be insider trading? Couldn’t a company explicitly give a bonus to an executive as a reward for winning some business? Matt Levine makes a similar point in the article you linked.
  - take_a_breath 6y ago
    ==Assuming the options grant was coordinated with the loan deal (so we don’t need any innuendo about the suspicious timing), would that be insider trading?== We shouldn’t assume that considering the Kodak gave a completely different reason: “The options were granted to shield Continenza’s overall stake in the company from being diluted by a $100 million convertible bond deal clinched in May 2019 to help Eastman Kodak stay afloat, according to the person’s account.”

Rebelgecko 6y ago

Im not super familiar with options so maybe I'm misunderstanding how the grant works. But the CEO hasn't actually traded anything. Isn't that a prerequisite for insider trading?

sfblah 6y ago
The key is when the options are priced. I believe even Steve Jobs got in trouble for that 15 or so years ago.
- godzillabrennus 6y ago
  Backdating options was a scandal in SV about a decade ago at all the big firms.
- Lazare 6y ago
  Option pricing is a separate issue; you can certainly do it wrong and get in trouble, but it's not insider trading either way.

arminiusreturns 6y ago

Wow I love that dashboard! Well done. Are you trading off this at all?

Lazare 6y ago

There was a lot weird about that deal, but you've highlighted the one thing that is pretty clearly not insider trading. Had the CEO bought a bunch of shares, that would very possibly be insider trading, because he is (presumably) trading on information that doesn't belong to him, but belongs to the company, ie, the board. In the US, insider trading is a crime about misappropriation of information. But the board can do whatever they want. They can grant the CEO a large cash bonus, at any time, for any reason or no reason. And they can grant him a chunk of valuable options. And they can certainly do so because of a soon-to-be-announced deal, because again, they're the ones who "own" that information. Now, why the board might have thought that was a good idea, and to what extent the board was fulfilling their fiduciary duty to the stockholders is a separate question. Giving employees who do a good job a bonus is pretty routine, but on the other hand, just randomly giving the CEO an (effective) giant sack of cash is very much not routine, and there's a lot of practical reasons why companies do not usually do that. "It might violate insider trading laws" is, however, not one of them. :)

mc32 6y ago
Also, it seems they are focused more on preventing shady companies from scamming mom & pop investors (the old fly by night ops).