[ad_1]
When Pfizer and its German partner BioNTech announced Monday that its Covid-19 vaccine was highly effective, global stocks soared. Pfizer shares rose 7 percent and CEO Albert Bourla sold $ 5.6 million worth of shares within a step of the company’s all-time high.
This attracted some negative attention. But Pfizer released a proven answer. “The sale of these shares is part of Dr. Bourla’s personal financial planning and a pre-established plan (10b5-1), which allows, under SEC rules, the major shareholders and insiders of listed corporations trading a predetermined number of shares at a predetermined time on the stock market, “said Pfizer.
All of which is correct. Executives generally cannot trade their company’s stock outside of a short window that follows quarterly results. However, the Securities and Exchange Commission makes an exception for pre-scheduled sales. The idea is that if you set a trade to run automatically in subsequent months or years, it is unlikely that you are unfairly abusing inside information.
Whenever executives are criticized for selling shares at an advantageous time, they like to point out a 10b5-1 plan to suggest that there is no problem. However, the benefits of these plans are greatly exaggerated.
They help prevent the main type of insider trading: buying or selling stocks before an announcement that will raise or lower the share price.
But even if the timing of your trade is locked, what if you control the timing of the announcement?
If the Pfizer news had come in on Tuesday and the sale of Dr. Bourla was scheduled for Monday, the sale would have been executed at a lower level. Assuming the shares were stable on the day, Dr. Bourla would have raised just $ 4.8 million instead of nearly $ 5.6 million.
There is no evidence that the stock plan influenced the timing of the announcement. The involvement of several people in two companies makes it unlikely.
There is also the possibility that the plan specifies a certain price instead of a date, although the company’s statement referred to a predetermined time. But everything shows that planned sales can create question marks and eliminate them.
There are other problems that are less theoretical. The intention behind the plans is to allow executives to make regular, modest sales of company stock over an extended period. It is not a question, as Dr. Bourla has done, of disposing of 62 percent of all its property within three months of the plan’s implementation.
Dr. Bourla is not the only CEO of the pharmaceutical industry making money this year. At Moderna, which also has a promising vaccine candidate, CEO Stéphane Bancel has sold a whopping $ 49.8 million in company stock, according to data from S&P Global. He has also explained his actions by pointing to a 10b5-1 plan. Although its stock sales are much larger, the plan was put in place at least long before the pandemic, in December 2018, and it is running relatively small volumes at regular intervals. The dollar amounts are especially large because the company’s stock has quadrupled this year. Additionally, Mr. Bancel retains the majority of his net worth in Moderna.
When Sandy Weill was building the Travelers financial services group, he had his top executives take a “blood oath” that they would not sell any shares in the company until they left or retired. That extreme position certainly ensures that management is aligned with outside investors. Selling most of your properties, without a divorce or other inevitable event, looks bad. That’s especially true when the public’s trust in your business is a matter of life and death.
