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Inside trading - anyone with insights and/or warnings?


KinAlberta
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When it comes to insider trading reporting, all I think I know is that CFO actions may be indicative of something but not much else of value can be gleaned from the numbers.

 

However, what are your thoughts and experiences (and hopefully references to reasonably rigorous studies)?

 

 

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I have a good one.

 

We owned close to 1% of a micro cap British company that's listed on AIM (not saying the name as it's still going). We thought the company was cheap, it was growing, was in an ok business (8-12% avg ROE); we liked management, and they were also considering a dividend. It had almost no institutional investors, and with the dividend being initiated and ok growth, it'd sooner rather than later that investors would pile in. It was literally 2 weeks after we got our full position, we learned the CEO was ill and would be resigning. We were a little worried, but decided to hold the course. Needless to say, the replacement CEO that was brought in had a "colourful" past. What worried us more was the long-term incentive plan that the company signed up for to get him on board. He only had to increase the share price by 23% to be granted a chunk of the company for nothing. We eventually got to meet him and within minutes, we just knew he was an oily character, too much promotional talk, too much focusing on the stock price. The alarm bells were ringing at this stage, and when by chance we ended up meeting an old acquaintance of his who told us he was a bad egg, we unloaded our stock. I am almost certain that he is defrauding the company, because the stock price to a literal day managed to stay in the 90 day range above a certain price so his performance options would vest. We thought that he would do something like that to get the options to vest, so probably could have held on and made money.

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