The skyrocketing share prices of GameStop, BlackBerry and other companies generating “YOLO” paydays for some members of Reddit’s Wallstreetbets Forum they are also making unexpected money for company insiders.
Since January 1, executives at BlackBerry and GameStop have been selling shares, making a total of more than $ 22 million in shares. Lately, they have also received a big boost from the flabby group of amateur social media traders who have relentlessly bid on the shares of companies and at least some of whom have declared it their mission to divert profits from Wall Street to Main Street.
There is no allegation of undue negotiation of inside information in any of the negotiations. And several experts told CBS MoneyWatch that they see no evidence that any members of the company and executives who recently sold shares in GameStop and BlackBerry did something wrong.
Still, a person familiar with share sales told CBS MoneyWatch that GameStop has changed in the past few days to restrict executives and insiders from selling additional shares.
Executives and insiders are leaving at the same time that Wallstreetbets participants are pressuring their members to snap up the stock. Robinhood, a trading app popular with Wallstreetbets investors, this week merchants temporarily barred to buy more GameStop shares. The ban was partially lifted on Friday.
Executives tend to trade stocks through pre-defined plans to avoid any appearance that they may have traded based on insider information, which is illegal. But notes on the trades in recent documents that executives submitted to the United States Securities and Exchange Commission do not claim that the recent stock sales on BlackBerry and GameStop came about through so-called 10b5-1 plans. This suggests that none of the negotiations were scheduled in advance.
“Pay for luck”
Perhaps more importantly, stock options and other stock grants must align executives with other investors – in short, corporate leaders must be paid for their performance in building viable companies in the long run. Still, profiting from what many see as reckless speculation driven by social media highlights the problems of how senior executives are paid, experts told CBS MoneyWatch.
“It’s paying for luck,” said Benjamin Golez, associate professor of finance at the University of Notre Dame’s Faculty of Business in Mendoza.
Three BlackBerry executives last week withdrew nearly $ 1.7 million in company stock. One of the executives, BlackBerry’s chief financial officer, Steve Rai, sold all of his shares in the company, although he has unearned options that could turn into shares in the future.
BlackBerry shares were trading at about $ 5.50 before they became the subject of conversations on the Wallstreetbets message board. At that price, the shares of the three executives would have been worth about $ 700,000. But the ensuing frenzy driven by Wallstreetbets added $ 1 million to the combined value of its shares.
Wallstreetbets insurgents may be even more fortunate for BlackBerry CEO John Chen. Under his compensation package for joining the software company in 2018, Chen could receive a one-time cash bonus of $ 90 million if BlackBerry’s shares were traded above $ 30 for 10 consecutive days at any time before the end of 2026.
On Wednesday, the shares of BlackBerry, which has lost more than $ 800 million in the last four quarters reported, came close to that magic figure of $ 30, reaching $ 25, although they have since declined to around $ 14.
BlackBerry did not respond to a request for comment on executive stock sales. But a spokesman for BlackBerry told the Wall Street Journal that executives sold their shares during a window where trading was allowed.
$ 20 million richer
The bank accounts of four directors at retailer GameStop also benefited from Reddit’s attacks. GameStop has lost nearly $ 1.6 billion over the past three years. Its sales have recently dropped 30%, and it is closing 1,000, or about 20%, of all its stores. Even so, the company’s stock soared from around $ 17 at the beginning of the year to $ 315 on Friday.
Since the beginning of the year, four GameStop board members have pocketed $ 20 million from the sale of shares in the company. One of the salespeople was Kurt Wolf, a financial manager and former executive consultant who joined GameStop’s board last year. Hestia Capital, Wolf’s investment fund, discharged more than two-thirds of its stake in GameStop in January, raising Wolf and his clients just over $ 17 million.
GameStop did not return requests for comment on executive stock sales. Wolf, through a spokesman, declined to comment. A lawsuit with the SEC notes that Wolf sold to diversify his holdings in funds.
Thomas Gorman, a partner at the law firm Dorsey & Whitney and a securities law expert who spent seven years with the Securities and Exchange Commission, said that if he were advising the boards of companies whose shares were tendered by Wallstreetbets brokers, he would say they should asking executives to refrain from selling while stocks look artificially high.
But Gorman also pointed out that executives who sell shares are not breaking any rules. Corporate boards are unable to prevent executives from selling stocks suddenly, as long as earnings are not tied to insider information.
“This is external information,” he said.
The problem is that stock compensation must align executives with the company’s broader fortunes. In the case of GameStop and BlackBerry, executives and insiders seem to be benefiting from frantic speculation in companies’ stocks – and not from any real improvement in their business.
“Boards can use their aggressive pulpit and tell their executives that it is not a smart time to draw their stock,” said Gorman. “But that does not mean that these executives, who are sitting in all these actions, will listen.”