I’m hearing about quite a few margin calls on CEOs in recent days. I guess it’s common for them to buy shares and/or exercise options and then borrow against them. They get the credit for the “buy” (investors love this) yet at the same time they can pull their cash and do whatever with it. If things go south, they have no worries because they’re not on the hook for the shares (that they didn’t pay very much for) and investors are more likely to understand forced liquidations than selling for any other reason. I remember reading in the CFA program about SWAPs that insiders can use to offset the risk of being overweight in their own company’s stock (without needing an SEC filing). I’m sure they had these swaps with financial services banks that are tanking… wondering if that’s exacerbating share price declines.
My limited experience with this is that it generally couldn’t happen to nicer guys.
Lots of executives take out margin loans against their holdings in company stock in order to diversify. However, if you look at what Simpson at XTO and McClendan at CHK were doing over the past few months…They were buying more stock in their own company so they were leveraging up company stock to buy more company stock. Sux to be them.