Chinese Company Insiders Have Sidestepped Billions In Losses With Conveniently Timed Stock Sales

Chinese Company Insiders Have Sidestepped Billions In Losses With Conveniently Timed Stock Sales

Insiders at Chinese companies seem to have incredible timing in selling their own stock.

At least, that’s the reasonable conclusion one has to draw after reading a new Wall Street Journal report that shows insiders had propensities to sell “large stock holdings” in the periods just before sharp declines. 

An academic analysis of securities filings shows that Chinese company insiders “avoided at least $10 billion in losses on trades made between 2016 and mid-2021 by selling stock ahead of significant price declines,” the report said. 

The analysis was performed by former SEC commissioner Robert Jackson and the University of Pennsylvania’s Bradford Lynch and Daniel Taylor, the Journal wrote. They looked at more than 100,000 Form 144 filings that were filed between 2016 and 2021 as part of their research. 

In the year following their sales, share prices were down by 21% on average. For American insiders whose stock sales were similarly analyzed, the research showed that stock sales preceded 2% gains in stocks the following year. 

One stunning example was when an entity controlled by an Alibaba insider sold $150 million of Alibaba stock in the day before founder Jack Ma was critical of Chinese regulators. The day after Ma’s speech, Alibaba fell 8%.

The sale by an entity called Sky Scraper Enterprises Ltd. “avoided hundreds of millions of dollars” in losses, the Journal wrote, stating that the entity likely belonged to “one of the company’s best-paid executives in recent years”.

The sale was made under a Rule 10b5-1 plan, and an Alibaba company spokesperson said: “It is highly inappropriate to suggest that a plan adopted by SkyScraper Limited in early September 2020 was timed to result in a stock sale ahead of unexpected challenges the Ant IPO encountered two months after the plan was put in place.”

In addition, the Journal looked at iQIYI stock sales, where $125 million was sold before shares were cut in half in the following two months in 2021. It also looked at how top executives at Vipshop Holdings sold more than $250 million in stock near the company’s record highs, before the stock fell 70% in the six months following the sales. 

The use of Form 144s hid the sales, the Journal noted:

If those were American companies, the trades would have been reported to the SEC’s corporate-filings website, Edgar, and immediately noticed by investors and services that closely track insider sales. Instead, PDFs documenting them were emailed to the agency’s headquarters and posted on an obscure SEC website.

Jackson will be testifying in front of congress on Tuesday about insider trading laws. His testimony will state: “Exempting foreign-firm executives from rules governing the transparency of insider trades is the kind of gap in our law that we must close to protect Americans’ confidence in the fairness of our markets.”

Tyler Durden
Tue, 04/05/2022 – 19:20

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