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Zuckerberg 'Sold More Stock Than Usual', Faces Lawsuit From Angry Investors (cnbc.com)
"Facebook executives said on Wednesday its profit margins would plummet for several years due to the cost of improving privacy safeguards and slowing usage in its top advertising markets," reports Reuters, adding that the news "wiped over $120 billion off the company's share price." One millennial options trader lost $180,000 overnight.
And meanwhile CNBC reports that Facebook insiders "sold more stock than usual in the second quarter," the vast majority sold by Mark Zuckerberg, leaving some experts with mixed opinions. To be clear, insiders sold in compliance with what's known as Securities and Exchange Commission Rule 10b5-1, a preapproved selling mechanism that is completely legal. And there is no evidence to suggest they were acting on inside information about the disastrous quarter that sent Facebook's stock down nearly 20 percent Thursday. However, their timing happened to be pretty good....
"You have something that's an outlier here," said James Cox, professor at Duke University School of Law. "It happened to be a very bad quarter that they had -- it doesn't wear well."
Friday Facebook and Mark Zuckerberg were sued "in what could be the first of many lawsuits over a disappointing earnings announcement by the social media company that wiped out about $120 billion of shareholder wealth." The complaint filed by shareholder James Kacouris in Manhattan federal court accused Facebook, Zuckerberg and Chief Financial Officer David Wehner of making misleading statements about or failing to disclose slowing revenue growth, falling operating margins, and declines in active users.
Kacouris said the marketplace was "shocked" when "the truth" began to emerge on Wednesday from the Menlo Park, California-based company. He said the 19 percent plunge in Facebook shares the next day stemmed from federal securities law violations by the defendants. The lawsuit seeks class-action status and unspecified damages. A Facebook spokeswoman declined to comment.
And meanwhile CNBC reports that Facebook insiders "sold more stock than usual in the second quarter," the vast majority sold by Mark Zuckerberg, leaving some experts with mixed opinions. To be clear, insiders sold in compliance with what's known as Securities and Exchange Commission Rule 10b5-1, a preapproved selling mechanism that is completely legal. And there is no evidence to suggest they were acting on inside information about the disastrous quarter that sent Facebook's stock down nearly 20 percent Thursday. However, their timing happened to be pretty good....
"You have something that's an outlier here," said James Cox, professor at Duke University School of Law. "It happened to be a very bad quarter that they had -- it doesn't wear well."
Friday Facebook and Mark Zuckerberg were sued "in what could be the first of many lawsuits over a disappointing earnings announcement by the social media company that wiped out about $120 billion of shareholder wealth." The complaint filed by shareholder James Kacouris in Manhattan federal court accused Facebook, Zuckerberg and Chief Financial Officer David Wehner of making misleading statements about or failing to disclose slowing revenue growth, falling operating margins, and declines in active users.
Kacouris said the marketplace was "shocked" when "the truth" began to emerge on Wednesday from the Menlo Park, California-based company. He said the 19 percent plunge in Facebook shares the next day stemmed from federal securities law violations by the defendants. The lawsuit seeks class-action status and unspecified damages. A Facebook spokeswoman declined to comment.
I don't know about Zuckerburg selling more shares than usual/expected, but the earnings call shouldn't have been so much of a surprise. He made multiple announcements about their plans weeks before the earnings call. He mentioned how many people they were hiring and that their actions to secure and improve the platform would significantly affect profits. Saying that this came out of nowhere is nonsense.
The reference to rule 10b5-1 means the stock sales were arranged months in advance. Such arrangements do "not permit the person to exercise any subsequent influence over how, when, or whether to effect purchases or sales". [Quoting 10b5-1]
This is to ensure a) they aren't selling bases on some recent news that hasn't become public and b) plans of significant stock sales by executives serve as a warning to other investors, so the public can choose to sell their stock BEFORE the executives sell theirs, if they wish to do so.
Let's see, he lost $180K, and FB went down 19% that one day, which would imply just under a million dollars or so in options trading.
Sorry, when you're dealing with those numbers ( and it's options, not real stock), it's somewhat hard to feel sorry anymore. Especially since if you read up on the guy and his celebrations of $300K in gains. $180K is a lot, but if you're doing that level of OPTIONS trading, you're probably fairly well taken care of and that $180k might just mean you skip today's Bentley purchase. (The people who do those sort of trades are either institutional, or already multimillionaire rich).
It's like people who complain a tax increase will cost them $50,000 more (happened). Turns out if you do that calculation, the guy was already doing about $2M in income so while the numbers are impressive, the real meaning behind them is hidden.
And yes, it always helps to do that calculation. Next time someone claims big numbers, find out what that tax increase actually means and you'll probably find out they're not going to be hurting quite so much.