Rising prices for GameStop, BlackBerry and other companies that generate “YOLO” paydays for some members of Reddit’s Wallstreetbets forum it also gains an advantage for those inside the corporation.
As of January 1, BlackBerry and GameStop executives have been selling shares for a total of more than $ 22 million. Eventually, they got a major boost from the social media-free amateur collective that has been bidding incessantly on company shares, and at least some of them have declared their mission to redirect Wall Street profits to Main Street. .
There are no charges of improper inside trading of any trades. Even more experts told CBS MoneyWatch that they see no evidence that any of those who recently sold GameStop and BlackBerry shares did anything wrong.
However, a person familiar with stock sales told CBS MoneyWatch that GameStop has moved in recent days to restrict executives and insiders from selling additional shares.
Executives and insiders came out at the same time, Wallstreetbets participants pushed their members to raise the stock. Robinhood, a popular Wallstreetbets investor trading app this week temporarily banned traders from buying several shares of GameStop. The ban was partially raised on Friday.
Executives tend to trade shares through pre-arranged plans to avoid any insider trading that might have been insider trading, which is illegal. But notes on transactions from recent recordings of executives to the US Securities and Exchange Commission do not mention that recent sales of shares in BlackBerry and GameStop took place through so-called 10b5-1 plans. This suggests that none of the transactions were scheduled in advance.
“Pay for luck”
Perhaps more importantly, stock options and other stock grants should align executives with other investors – in short, corporate leaders should be paid for their performance in building long-term viable companies. However, the revenue from what many see as reckless social media-driven speculation highlights issues with how senior executives are being compensated, CBS MoneyWatch experts said.
“It’s a payoff for luck,” said Benjamin Golez, an associate professor of finance at the University of Notre Dame, Mendoza Business College.
Three BlackBerry executives received nearly $ 1.7 million worth of company stock last week. One of the directors, BlackBerry Chief Financial Officer Steve Rai, has sold all his shares in the company, although he has uninvested options that could turn into shares in the future.
BlackBerry shares traded at about $ 5.50 before becoming the feed for the conversation on the Wallstreetbets message board. At that price, the shares of the three directors would have been worth about $ 700,000. But the ensuing frenzy, led by Wallstreetbets, added $ 1 million to the combined value of their shares.
Wallstreetbets insurgents could launch an even greater effort for BlackBerry CEO John Chen. As part of its 2018 software membership compensation package, Chen could receive a $ 90 million cash bonus once if BlackBerry shares trade above $ 30 for 10 days in a row anytime before of the year 2026.
On Wednesday, shares of BlackBerry, which lost more than $ 800 million in the last four quarters reported, approached that magic number of $ 30, reaching $ 25, although they have since fallen to about $ 14 .
BlackBerry did not respond to a request for comment on executive stock sales. But a BlackBerry spokesman told the Wall Street Journal that executives sold their shares during a window where transactions were allowed.
$ 20 million richer
The bank accounts of four troubled GameStop retail executives also benefited from Reddit raiders. GameStop has lost nearly $ 1.6 billion in the last three years. Its sales have recently fallen by 30% and 1,000, or about 20%, of all its stores are closing. However, the company’s shares rose from about $ 17 earlier this year to $ 315 on Friday.
Since the beginning of the year, four members of GameStop’s board of directors have raised $ 20 million from the sale of the company’s shares. One of the sellers was Kurt Wolf, a money manager and former executive consultant who joined GameStop’s board of directors last year. Hestia Capital, Wolf’s investment fund, unloaded more than two-thirds of its stake in GameStop in January, earning Wolf and his clients just over $ 17 million.
GameStop has not returned requests for comment on its sales of executive shares. Wolf, through a spokesman, declined to comment. An SEC filing notes that Wolf sold to diversify his holdings.
Thomas Gorman, a partner at law firm Dorsey & Whitney and a securities expert who spent seven years with the Securities and Exchange Commission, said he would advise the boards of companies whose shares have been auctioned off by traders. Wallstreetbets would say it is asking executives to refrain from selling, while the stock seems artificially high.
But Gorman also pointed out that directors who sell shares do not break any rules. Corporate boards do not have the ability to stop executives from selling in a sudden operation, provided that the gains are not linked to inside information.
“This is outside information,” he said.
The problem is that compensation for actions involves aligning directors with the larger assets of the corporation. In the case of GameStop and BlackBerry, executives and insiders seem to be taking advantage of the frantic speculation in the company’s stock – not a real improvement in their business.
“Councils can use their pulpit for aggressors and tell directors it’s not a smart time to cash in on their actions,” Gorman said. “But that doesn’t mean those directors, who sit on all these actions, will listen.”