Taxes

Corporate Stockholders Are Making a Killing On Insider Trading and GOP Tax Cuts

JM Ashby
Written by JM Ashby

Between record buybacks and dividend payments enabled by the GOP's huge corporate tax cuts, stockholders and investors are expecting to see their wealth increase about about $1 trillion this year, but some wealthy stockholders will see even more return than the average stockholder.

Corporate stockholders, meaning people who work within the company and have access to insider information, are making even more money through insider trading.

These privileged stockholders, such as company executives and managers, are using their knowledge of upcoming buybacks to increase the value of their own stock sales immediately after the announcement they know is coming.

From the Wall Street Journal:

Taking advantage of price bumps that often accompany share-repurchase announcements, company executives have been selling significantly more of their stock immediately after the news than they do beforehand, according to an analysis by Robert J. Jackson, Jr. , a commissioner at the Securities and Exchange Commission. [...]

Mr. Jackson, a former law professor, examined stock trades at 385 companies that announced buybacks in 2017 through this year’s first quarter. He found the percentage of insiders selling shares more than doubled immediately following their companies’ buyback announcements as many of the stocks popped.

Daily stock sales by the insiders rose from an average of $100,000 before the buyback announcements to $500,000 after them. The sellers received proceeds totaling $75 million more than had they sold before the announcement, the study concluded. At 32% of the companies, at least one insider sold in the first 10 days after the buyback announcement.

This sounds like insider trading, and it is, but it's also apparently legal.

Unbeknownst to me before reading this report from the Wall Street Journal, corporate buybacks are exempt from SEC regulations on market manipulation. The SEC also hasn't reviewed the rules in the past 10 years according to the Journal.

It's probably too late to review or change the rules now that executives and wealthy investors have already pocketed nearly the full value of the GOP's entire package of tax cuts. They've front-loaded the windfall for themselves and all we're going to see in the future is higher deficits with virtually no return for average Americans. A trillion dollars sunk into buybacks and dividends means a trillion dollars they chose not to invest in new business, products, and jobs.

  • Badgerite

    Who could have predicted? trump gets what he wants by giving corrupt and authoritarian elements at home and abroad everything they want. He’s an fffing crook.

    • Scopedog

      All of this was predictable. It was everything that Hillary warned us about.

      If there’s a silver lining, it’s that the majority of voters went for her. But too many others went for Trump, and the media was too busy attacking the false figure of Hillary that they had spent 20+ years building.

      Now it’s all being revealed in front of us, and people still sit back and mutter, “But Hillary would have been worse!!”. Fortunately, at least since last year, it’s clear that more and more people are becoming pissed off at what has been happening and are voting accordingly. Hopefully that will translate to a Democratic House in January 2019.

      • Badgerite

        Not enough. We need to California this ffffing party. They are worse, even then I thought. And I thought they were pretty bad.

  • muselet

    Why, it’s almost as if the Ds and every sane economist who looked at the Rs’ tax deform bill were right, that the changes would further enrich the rich and benefit regular people hardly at all.

    –alopecia

  • Aynwrong

    We’re cannibalising our own economy.

    • Scopedog

      Yep. And we all know how things will turn out when that happens…(see 1929, 1987, 2008).

      • Christopher Foxx

        A Democrat will have to come in and fix things?

  • gescove

    I’m sure the trickle down is coming soon.

    • muselet

      What’s trickling down isn’t money.

      –alopecia

      • gescove

        Exactly. All that’s golden isn’t gold. Just ask President Pee Tape.