SEC Commissioner Jackson: Buybacks Coincide With Increased Insider Selling

Call it a coincidence or something more malicious, but according to a prominent SEC commissioner, there is a strong correlation between company buybacks subsequent stock sales from executives.

Specifically, SEC Commissioner Robert Jackson found that company insiders are far more likely to sell their shares the day of an announced share buyback. Additionally, he found, companies that allow this tend to underperform over time, suggesting the executive paydays are coming at the expense of shareholders.

"CEOs don't sell valuable things cheaply," he told CNN on Wednesday. "Executives are using buybacks as a way to cash out."

The report came at the behest of Maryland Senator Chris Van Hollen, who had asked the SEC to follow-up after SEC Commissioner Jay Clayton had previously told the Senate Banking Committee that the timing may be coincidental because it coincides with insider lockup expirations.

In an analysis of all buybacks between 2017-2018, the SEC found that 38 percent of firms conducting buybacks had no insider activity in the prior 30 days, but over half saw insider activity in the eight days following.

However, the regulatory body cautioned that the correlation between insider sales around buybacks and lower long-term returns may not be a causality. Still, Jackson’s report and subsequent comments are the latest in a series on buybacks from Washington. Senators Tammy Baldwin, Amy Klobuchar, Chuck Schumer, Bernie Sanders, and Marco Rubio have all proposed limits on buybacks in some form. Companies bought back more than $1 trillion of stock in 2018, a new record.

In response to Jackson’s findings, Sen. Van Hollen suggested prohibiting executives from selling shares surrounding a company buyback, but it’s unclear when or how that would take shape.

Jackson will be a featured speaker at the upcoming SALT Conference, where he will likely comment on the issue further.