The London Paper – 14 April 2008
‘Anybody who plays the stock market not as an insider is like a man buying cows in the moonlight’ said the famous 19th century American financier Daniel Drew. That’s all well and good but there are now rules in place to prevent such abuse – as 17 characters discovered last week. These jokers, most of whom are or were executives of the Franco-German aerospace giant EADS, are to be investigated for selling stock in their company just before a profit warning in June 2006 took a quarter of the value off its share price. This kind of nonsense really gets my goat and, if proven true, once again shows us that boundless greed is alive and extremely well at the top of the corporate tree.
People like to pretend that insider trading is a ‘victimless’ crime but that simply ain’t the case. Those poor unsuspecting clowns who bought the shares off those lovely guys at EADS discovered pretty sharpish that they’d been sold a pup. Since these bods were probably running pension funds for ageing Europeans, Madame Miggins and her ilk may soon discover that they’ll have to take it easy on the absinthe going forward. Meanwhile those ‘lucky’ (or morally dubious) characters who sold vast quantities of shares can sit on their fat arses debating whether a pad in Monaco or a100 foot yacht is more likely to get them laid by young models even if they’re about as tall as Bernie Ecclestone and have a body with the toned definition of Flavio Briatore.
The most famous recent example of what may have occurred at EADS happened to a rather wonderful company by the name of Enron. This delightful enterprise was once America’s 7th largest company and was voted America’s ‘most innovative’ company six times in a row. Unfortunately, the most ‘innovative’ thing about the company was that its financial reports had diddly squat to do with reality – and hence it filed for bankruptcy in December 2001. Senior executives who obviously realised that the game was up sold over a $1bn of their shares between 2000-2001 whilst at the same time encouraging all their 21,000 employees to invest their pension in Enron stock. It is estimated that Enron staff lost over $1.4bn and now face a dotage of scrimping and hardship. These poor people never got their wedge back and the vast majority of senior executives who sold their shares got away with it.
When it comes to buying shares the only real ‘no-brainer’ is when you happen to have inside information. Senior executives are privy to this all the time so the simple conclusion is that if you’re thinking of investing in a company scrutinize the recent trades made by its board members. Amazingly, the vast majority of analysts remained positive on Enron even as its directors off-loaded their stock. Surely by now any sensible soul must realise that we brokers are about useful as a one-legged man at an arse-kicking contest!