ProPublica, IRS Files: Wealthy executives make millions trading competitor stocks in exceptional timing:
Never-before-seen IRS records show CEOs sometimes place multimillion-dollar bets on the stocks of competitors and direct partners, and they do so at exquisite timing.
On February 21, 2018, August Troendle, a billionaire from Ohio, made a very timely stock transaction. He sold $1.1 million worth of Syneos Health stock the day before a management shakeup sent the company’s shares tumbling 16%. It was the biggest one-day drop that year for Syneos’ share price.
The company was one Troendle knew well. He is the CEO of Medpace, one of Syneos’ main competitors in a niche industry. Both Syneos and Medpace run clinical trials for biopharmaceutical companies, and that year they jointly launched a trade association for companies in the field.
The day after selling Syneos shares in February 2018, Troendle bought them back, worth at least $3.9 million. The value of his stake in Syneos increased by 75% in the following year.
In February 2019, Troendle sold much of that position, earning a net gain of $2.3 million. Two days later, Syneos revealed that the Securities and Exchange Commission was investigating its accounting practices. The news sent the company’s shares tumbling. Troendle’s sale averted a 25% loss, the biggest drop for the shares in such a short period during that year or the previous one. (Troendle declined to comment.)
The Medpace executive is among dozens of top executives who have traded in shares of competitors or other companies with close connections to his own. A Gulf of Mexico oil executive invested in a partner company the day before announcing good news about some of its wells. A paper industry executive earned a 37% return in less than a week by buying a competitor’s stock just before it was acquired by another company. And a toy mogul traded hundreds of millions of dollars in stock and options in his main rival, trading for at least 295 days. He returned 11% in a recent five-year period, even as his rival’s shares fell 57%.
These transactions are captured in a vast IRS dataset of stock trades made by the richest people in the country, part of a trove of tax data leaked to ProPublica. ProPublica analyzed millions of those transactions, isolated those made by corporate executives trading in companies related to theirs, then identified transactions that were anomalous, either because of the size of the bets or because people were trading a particular stock for the first time. or using high. -risk and high return options for the first time.
The records do not give any indication of why the executives carried out particular transactions or what information they possessed; they may have simply relied on years of extensive industry knowledge to make shrewd bets at haphazard times. Still, the records show many cases where executives bought and sold at exquisite timing.
Such business records have never been publicly available. Even the SEC itself does not have such a comprehensive database. The records provide unprecedented insight into how American industry titans are getting even richer in the stock market.
US securities law prohibits “insider trading” (buying or selling shares based on access to nonpublic information that is not available to other investors) under certain circumstances. Historically, insider trading prosecutions and SEC enforcement have focused on corporate employees and those close to them, who trade stocks in their own companies.
But company executives may also have extensive access to nonpublic information about rivals, partners, or suppliers through their businesses. According to experts, buying or selling stocks based on that knowledge may violate the insider trading law. ProPublica described multiple exchanges, without naming names, to Robert Zink, former head of the Justice Department’s criminal fraud section, who responded that if he was still at the Justice Department, “of course we would look into it.” He added that the key to ProPublica’s findings is that “trade doesn’t seem to be a one-time or two-time thing. A lot is happening.”
Harvey Pitt, former SEC chairman, said it was unwise for corporate officials to bet on the fortunes of competing companies. …
Insider trading is a simple concept and at the same time difficult to prove, because it depends on fuzzy definitions and judicial sentences which have favored the defendants and weakened the execution. Things are even murkier when it comes to executives buying and selling shares of rivals and partners. This may be perfectly legal.
But even when legal, such transactions can allow executives to win when their companies lose, according to securities experts. Executives are often generously compensated with shares in their own company, giving them direct reward for maximizing profits and increasing their company’s stock price. Owning competitors’ shares potentially gives them a reason to encourage their rivals to succeed, said Alan Jagolinzer, a professor of financial accounting at Cambridge University’s business school.
And by making millions trading nonpublic information, executives could contribute to the perception that the stock market is rigged to benefit the insiders. Well-placed executives enjoy access to information within their industry that is not available to ordinary investors. The perception that industry experts use such knowledge for personal gain could undermine public confidence that markets are fair.
Previous TaxProf blog coverage:
- ProPublica: America’s Richest People Pay Little or No Federal Income Tax (June 8, 2021)
- ProPublica: How Peter Thiel Turned $2,000 in a Roth IRA into $5,000,000,000 (June 28, 2021)
- ProPublica: Why You Can’t Turn Your Roth IRA Into a Billion-Dollar Tax Shelter (July 1, 2021)
- ProPublica: The Billionaire Playbook: How Sports Owners Use Their Teams to Avoid Millions in Taxes (July 12, 2021)
- ProPublica: Number Of People With IRAs Worth $5 Million Or More Has Tripled, Congress Says (July 29, 2021)
- ProPublica: Secret IRS Files Reveal How Much the Ultra-Rich Gained Shaping Trump’s “Big and Beautiful Tax Cut” (August 11, 2021)
- ProPublica: How Trump’s Tax Law Created A Loophole That Allows Top Executives To Make Millions By Cutting Their Own Salaries (August 20, 2021)
- ProPublica: House Bill Would Blow Up the Huge IRA Accounts of the Super-Rich (Sept. 22, 2021)
- ProPublica: Over Half of America’s 100 Richest People Take Advantage of GRATs to Avoid Estate Taxes (Sept. 30, 2021)
- ProPublica: 18 Billionaires Received Taxpayer-Funded Stimulus Checks During the Pandemic (November 4, 2021)
- ProPublica: How these ultra-rich politicians avoided paying taxes (November 5, 2021)
- ProPublica: More Billion-Dollar Tax Games (December 9, 2021)
- ProPublica: How Three Families Protected Their Fortunes From Taxes For Generations (December 15, 2021)
- Wall Street Journal editorial, The Internal Revenue Leak Service (December 15, 2021)
- ProPublica: When billionaires don’t pay taxes, people ‘lose faith in democracy’ (March 4, 2022)
- ProPublica Names the 15 Americans Who Reported the Most Earnings and Reveals Data for the Top 400 (April 14, 2022)
- ProPublica: If You Get a W-2, You’re an Asshole (April 19, 2022)
- ProPublica: The Tax Scam That Won’t Die (June 22, 2022)
- ProPublica: The Billionaire Republican Megadonor Who Is Gaming The Tax System (June 22, 2022)
- ProPublica: 10 Ways Billionaires Avoid Taxes on an Epic Scale (June 27, 2022)
- Wall Street Journal Editorial, Comey|McCabe IRS Audits AND ProPublica Tax Leak Must Be Investigated (July 8, 2022)
- Wall Street Journal, Citadel’s Ken Griffin Sues IRS for Leaking Tax Return Information to ProPublica (December 15, 2022)
- ProPublica: How the Rich Save Billions in Taxes by Skirting Fake Sale Rules (February 13, 2023)
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