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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.
It's almost like access to all the metrics and paying attention to the fact that he was going to have to go in front of fucking Congress was obviously going to see a stock drop relatively soon. To be frank, anyone who had stock in Facebook should have sold in and then shorted a bunch more the day after his Congressional testimony.
One millennial options trader lost $180,000 overnight.
Is facebook stock the millennial options trader's safe space now?
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.
So the great thing about taking your company public is that you get to deal with members of the public owning your company.
I feel like any smart investor would have seen Zuckerberg being dragged up in front of congress and known that big changes were afoot for the de facto leader of social media.
So what's the basis for the lawsuit - facebook leadership didn't disclose they were in trouble? They just did disclose they're in trouble, that's why the stock price crashed and why you're angry. Hope the investor has some good evidence for the court because this suit seems frivolous.
That bit really made my day.
Knowledge is power; knowledge shared is power lost.
..."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." ...
Mr. Zuckerberg had always seemed to be such an upstanding, honorable person.
"no influence over whether the sale occurs" means not cancelable. Insiders can go to prison for buying or selling stock in a way that they could cancel it.
> Otherwise, if I was a CEO, I'd be arranging a sale on each quarter and only exercise the ones where I knew the end of quarter report would be bad.
That would put you in prison.
However, a court case added a new wrinkle and some nuance to that. Rule 10b5-1 is part of the SEC implementation of a law (statute) that says it's illegal to buy or sell a security unfairly based on insider knowledge. The statute doesn't say it's unlawful to NOT sell the security based on insider knowledge, only that's it's unlawful to buy or sell on that basis.
In other words, if there is no trade, it can't be an insider trade, according to the text of the law. So one can cancel the plan ONE TIME and never sell again, the court ruled. Until the insider arranges a new plan and exercises the transaction, there has been trade, and therefore no insider trade. If the insider does want to trade again in the future (and they must in order to redeem the value of their holdings), any future trades could be insider trades. The SEC will look at any trades that occur after a cancellation, looking for exactly what you described. If the insider cancels trades ahead of bad news, and doesn't cancel trades ahead of good news, that's probably insider trading. They have to look at the totality of the circumstances.
Sometimes in those types of situations, it looks like the cancellations (and non-cancellations) were likely to based on insider information, but there isn't enough evidence to convict. In such cases, the SEC can levy civil penalties of up to three times the amount of profit or avoided loss. Additionally, other investors can sue the insider. Such civil suits require only 50/50 evidence, convincing the judge or jury that it is "more likely than not" that the insider traded based on non-public information.
Forgive me if I have zero sympathy for an OPTIONS trader. Options trading is GAMBLING. Cry me a river...