Pfizer's CEO sold $5.6M in stock on same day of vaccine news
axios.comHere's the deal, since this issue comes up regularly in Hacker News comments:
It is 'not illegal' to time an announcement to benefit yourself if you have a 10b5-1 plan in place that automatically sells your stock on a fixed schedule. It's 'not illegal' in the sense that as long as you don't admit you did it, there's really no way to prove it and there's no legal framework for prosecuting you anyway. Lawyers call it 'disclosure timing' and it's one of those often-whispered-about loopholes for the rich.
No one admits to disclosure timing, but we all know that it is happening. We know this because on average trades made under 10b5-1 plans get better returns than trades not made under those plans. [1]
The law is full of ways for rich people to get richer if they have good lawyers. This is one of them. There's not much incentive to change it either - it is hard to prove, it is complex to explain to the public, and the kinds of people that benefit from it are the kinds of people in power.
One of the suggested routes to make the market more fair is to require those with 10b5-1 plans to make their scheduled trade dates public. This would at least give the market at way to guess at disclosure timing too. But again, there's no real political incentive to do this right now.
[1] https://clsbluesky.law.columbia.edu/2016/03/30/the-legality-...
NB: I'm not a lawyer, so obviously don't do anything based on this dumb internet comment.
I didn't find statistics about 10b5-1 trades being more profitable in the source, only idea that it should be so. Is there another source?
“The stock sale is perfectly legal through a predetermined plan called Rule 10b5-1”
Then why is this news.
I don't know about this particular case, but even if date of the sale was predetermined the date of the announcement was not.
You can time announcements to make the price go up before you sell or go down after you did.
A good 10b5-1 should allow trades to be executed on your behalf even while you might hold non-public information. Useful for cash flow, so you can buy nice things.
But if you control the date of the announcement to line up with instructions in your 10b5-1 plan, that would probably look more like insider trading despite the plan.
Which is how legal insider trading for management works these days. Because cancelling a 10b5-1 is perfectly legal at any time.
So you could totally abuse the system by submitting 5 of them, designed to allow for different strategies, then cancelling some of them to pick specific trading strategies based on more recent insider info.
And this works: cancelling them is normal, so that won't even attract much attention. It's a matter of executing well on this loophole.
The exact dates are not necessarily set in advance in a Rule 10b5-1 plan. The broker can make the decision based on metrics specified in the plan.
I'm guessing that the sharp stock price rise caused by the announcement triggered the sale based on these predetermined metrics, as it was meant to be.
That is to say, this is a non story and the article only tries to whip up controversy where there is none.
You're right. Anyway, even if it was completely discretionary selling after the announcement wouldn't be insider trading (unless he knows something bad which hasn't been disclosed yet that will make the price go down later). But the intention to sell, however is triggered, gives an incentive to put a positive spin on the announcement and profit from it (hardly unique to this case, the price of the stock didn't move that much anyway).
It is part of the CEO's job to put positive spins on things and to boost the stock price.
All CEOs are given stock-based compensation and incentives, and virtually all of them setup these sale plans in order to be able to sell legally and above board.
So again this is a non story.
I guess it depends when the sell order was placed, i.e was the announcement in the diary first or the sale order?
It doesn't matter is I think the point.
If you, as a CEO looking ot maximise personal profit, know a sale order data is coming up then you postpone or bring forwards the announcement to maximise the potential for that sale.
I don't know. It would be news if they found out he had actually BOUGHT stocks or stock options just before the announcements, because that would be a clear case of insider trading.
But selling AFTER an announcement when the stocks are up is... what any shareholder would do and would be allowed to do.
I bought Pfizer stock yesterday, I guess it will likely drop today as it looks like the CEO could have planned for the sale at what he perceived would be the peak. True or not a lot of investors will believe it, the optics are very poor.
Buy the rumour, sell the news
Well in a country with moral standard above the average, similar amoral yet technically legal behavior is frowned upon and can easily end political careers, as former chief of Swiss central bank found out [1]
[1] https://www.reuters.com/article/us-switzerland-hildebrand-id...
That was something else, his wife mysteriously knew that the swiss national bank binds the swiss frank to the euro..and he was the president of the national-bank.
That is insider trading, and directly profiting/stealing from the capital that belongs to the swiss peoples.
He was perfectly allowed to do that by his work contract (and so his wife, since in swiss marriage wealth is shared, and so are taxes here). That argument didn't work well in face of public and he was let go very quickly.
>Hildebrand’s wife Kashya, a former hedge fund trader who now runs a Zurich art gallery, bought 400,000 Swiss francs ($418,000) worth of dollars on August 15, three weeks before her husband oversaw steps to cap the rise of the safe-haven franc. She later sold the dollars at a higher rate.
AND
>Hildebrand admitted the scandal had revealed shortcomings in the SNB’s internal regulations and code of conduct.
So he self knew that it's not right to do that, he's not a normal President but the one from the Swiss national Bank. No one wants someone like that in such a position.
AND
>Christoph Darbellay, the Christian Democrat chairman of parliament’s economic committee that Hildebrand addressed, said it would push the SNB to tighten its rules. “People who can have an influence on the currency should keep their hands off,” he said.
Many things are (still) legal. This is how regulations form..
Maybe there should be a new regulation: No major announcements may be made which directly impacts stock price X% before X months of the predetermined sales date.
There is no way to know what percentage an announcement will move a stock. Additionally, given that executives schedule stock sales all year long (most of their comp is stock), that effectively means no announcements can ever be made.
There are rules like that. For example executives cannot buy/sell stocks of their companies around the major announcements like financial results. Most of the time internal compliance department just sets a windows in which it is safe to do such transactions.
As for the announcements one usually has to announce before the transaction is made (again compliance reasons) but then you don’t want to wait because the price tends to move against you with such announcements. This is why the real trades were likely executed just seconds after the announcement.
No, even better would be to trigger a revaluation of all stock values on that date, and tax the income (as normal income, not capital gains) as if 100% of their stock was sold at that price.
So if you hold 100 million shares valued at 1 USD/share, and sell 1 million at 2 USD/share, your tax liability will be assumed on you selling 100 million shares at 2 USD/share (or 200 million of regular income).
Next time you use an illustrative example, I suggest using the simplest figures you can.
With respect to your example, it's exactly the same point and IMO easier to follow if you remove all instances of the word "million."
But in that case, should Pfizer wait an additional x amount of days before they announce the vaccine just because the CEO had a sell order planned? That wouldn’t be great for the world either I think. Or how did you mean?
Execute the sale, then make the announcement.
Then if the trial was a flop he would be selling just in time to avoid the subsequent drop in price.
It did not occur to me until now that instead of timing their sales to announcements, senior execs could time announcements to their scheduled stock sales. Brilliant, in a way - a legal form of insider trading. In the meantime the lowly peons are often subject to "trading windows", and have no control over any material announcements. A bit of a disadvantage.
Because it shouldn't be legal?
It is logically impossible that this was predetermined (unplanned) in any reasonable sense, no matter what the law says.
To get clicks and sell ads, you know that.
If he really wanted to profit in the stock market, he could have bought call options for the cruise lines, or put options on Zoom, both of which jumped more than Pfizer stock did. And if I understand correctly, that wouldn't have been insider trading, that would have been perfectly legal?
Also, the article mentions it was a 10b5-1 plan. Typically that means he is precommitted to sell stock on a predetermined schedule, and had no choice but to continue selling this stock on this day as planned.
> If he really wanted to profit in the stock market, he could have bought call options for the cruise lines, or put options on Zoom, both of which jumped more than Pfizer stock did. And if I understand correctly, that wouldn't have been insider trading, that would have been perfectly legal?
Oh how easy. All he should have known in advance is that cruise lines and zoom stocks will move more than Pfizer. So strange that he decided not to do that when it is so obvious before the event.
That's not hard to know. Any of them would move more than Pfizer. They have been swinging around since the pandemic arrived. All the cruise lines soared the last time talk of a vaccine happened as well, while Zoom fell.
Why does Zoom go up on vaccine news?
It doesn’t. Buying a put option is a bet it will decline because it’s the right to sell a stock at a given price.
It didn't. It went down, crashed pretty hard. I don't think it was the only factor, though.
Zoom would go down, sorry. I was thinking of cruise lines. Pick any one of them and you would profit handsomely. But as others are saying, you can also bet on the stock going down.
I didn't, hence the OP said "put options on Zoom" - that would mean he would make money from Zoom diving (which it did).
The comment I responded to said that "Zoom soared" which is why I asked.
It doesn't. It goes down.
Presumably you've made at least 500k in trading vs cruse lines and on zoom then?
If I had known about the Pfizer announcement beforehand? Yeah, I would have.
You need the inside info of when vaccine news is coming out FFS. How is this so hard to follow?
Ah. Nvm I'm another blind guy who didn't see you said puts on zoom.
But he didn't know about the vaccine news ahead of time
Its not that they would move more or less, it is that they would move a large amount. And would not trigger a news item like this.
OP's point is that those things are correlated to the vaccine announcement (more travel coming, less remote work), so not random stock market decisions. Per my understanding though, this would still be considered insider trading as securities are being traded on the basis of non-public information (doesn't have to be your own stock).
> move more than Pfizer.
That’s not the bet. Pfizer is irrelevant because he can’t bet on Pfizer’s stock. He just needs to pick stocks in an industry killed by covid. That’s not hard.
The same pattern has played out on every major vaccination news. Airlines, cruise ships, Disney, etc rally.
And who decides on the announcement date of such a big reveal?
In this case, it was the FDA, who delayed the announcement (and the study itself) until well after it had met the data thresholds it was preregistered to use.
https://www.statnews.com/2020/11/09/covid-19-vaccine-from-pf...
Pfizer stock popped 12% on monday, more than enough!
The sale date is predetermined but press release dates are not.
This can easily be a monthly plan that runs several years. In that case doesn't make a big difference in his long term income.
Article says plan was created in August. Also I wonder according to the rules, with predetermined date, do you need to sell right at the opening or can choose time within day? Because it says "same day" but it's not clear was it before or after announcement.
I’m imagining now a Senate hearing where republican members admonish Pfizer for not announcing this information before the election to help their candidates, only for the CEO to drop the ultimate defense of “I timed it to make more money”
Not true - the sale can be triggered by a predetermined price as well.
Exactly
The stock went up 8% on the day of the announcement, giving him a gain of under 400K pretax. This is a lot of money for mere mortals like us, but small potatoes for the CEO of a major multinational company.
I find hard to believe he would risk an insider trading lawsuit over this amount, so my conclusion is that this was simply a prescheduled transaction. Have in mind that the increase will stick around for some time (stock still up ~8% since last week) so he would have benefitted anyway selling many days afterwards, or even weeks.
Assuming he pushed for the announcement to coincide with the preplanned sale he had absolutely no way of knowing how much the stock would potentially jump up.
If a bank robber only manages to get away with 100 dollars because the register is low, you wouldn’t come out defending him saying “well the claim is he only stole 100$, and obviously no one would care about such a small amount, so we can conclude that he didn’t actually try to rob the bank”.
Many other stocks made +30% in one day. For sure, some pfiser employees could have played with "calls" on other companies through proxies and made a lot of money. For exemple, if one has family in an other country, he could have instruct them to buy airbus calls. It is very difficult to detect that.
For the CEO of a company like Pfizer I'd imagine that this amounts to little more than one month's salary.
More like 3-4 months salary. He made $18M last year.
https://www.fiercepharma.com/pharma/pfizer-new-boss-bourla-n...
I am 100% ok with a CEO cashing out on top of a success.
Anything else effectively makes them a lower-class shareholder.
Pfizer is a huge, multi-billion dollar business. The CEO making $5M off a stock sale is relatively minuscule, especially after delivering such a massive win for shareholders.
Maybe I'm misunderstanding the article, but my reading is that the stock went up after the sale. So the CEO left money on the table.
Please help me understand. Wouldn't it be insider trading if anyone knowing the vaccine news, would BUY Pfizer shares just before the news, and not SELL just after the news?
This is big because it seems they have announced the results hurriedly before the trial concluded. Copy pasting a blog entry from https://raviopendiary.blogspot.com/2020/11/corona-daily-271-...
Corona Daily 271: Pfizer Vaccine – Celebrate with Caution
In an earlier chapter on the vaccine race, I wrote: God forbid Pfizer wins the race. God answered my fears. Yesterday, Pfizer announced with aplomb a 90% effective vaccine. Editors changed headlines, stock markets vaulted, people made new Christmas plans, respectable newspapers foresaw the end of the pandemic.
The Pfizer vaccine needs to be stored at -80 C (-112 F) all the time. The ultracold logistics rule out most of Asia and Africa. In the best case, it is accessible to 2.5 billion people in 25 countries, mainly North America and Europe. Dr Fauci called the results extraordinary, at the same time admitting he hadn’t seen the data yet. May the vaccine truly have extraordinary success, and spell the end of the pandemic. * When such joyous news is announced, it is in bad taste to criticize or express concerns. The critic will be termed a spoilsport, a pessimist, a conspiracy theorist, or antivaxx activist. I am none of these. I am, however, puzzled by the way Pfizer has gone about the process. I would like to voice these concerns so as to tone down the hype, if it is hype. As I wrote earlier, in the trials, the company must reach pre-agreed numbers of Covid-19 cases, in the vaccine and the placebo groups. Since the beginning, Pfizer has been aggressively demanding more interim points, and fewer cases. Their minimum point for seeking authorization was 32. (32 patients among 30000 participants). Anybody who has studied statistics would know the number doesn’t look significant. In fact, scientists not working for Pfizer raised this concern. This was summer time, and the curve was going down. The Pfizer scientists were worried about the time it may take to reach a higher figure. But they amended protocol to look at the data at 62 cases. Not only the numbers, Pfizer’s plan allowed the mildest cases to be counted. Most other trials including Johnson & Johnson and Oxford, even the Chinese vaccine trial currently, were paused because of adverse events. This is when a participant develops a condition that may have been caused by the vaccine. The trial remains paused until the condition is investigated. Pfizer enlarged its sample size to 44,000 but didn’t face a single adverse event, which must be attributed to its luck. On 26 October, Albert Bourla, Pfizer’s CEO said they didn’t have 32 covid cases yet. The interim data, when available, is reviewed by an independent board. Pfizer was once again lucky, the cases surged dramatically. On Sunday, 8 November, the independent board came, reviewed the data of 94 cases, and let the company management know the conclusion without sharing data. * The trial is not over. It will be over once Pfizer reaches 164 cases. The right thing was to wait till the end of the trials, and then publish the data in a medical journal for peers to review. Once it is peer-reviewed, the results can be published worldwide. Instead of that, Pfizer opted to release unpublished, unreviewed half-baked data as news. Not only that, the news was released consciously early on Monday morning before the US stock markets open. Stock markets are like dogs who will drool and jump at the sight of a dummy bone. When the markets opened, Pfizer shares leaped by 15%, its partner BioNTech’s by 24%, and the major indexes reached new records. Such outright corruption was glossed over in the euphoria of the 90% effective vaccine. FDA now has stricter standards after botching hydroxychloroquine and plasma episodes. Scott Gottlieb, the previous FDA commissioner, is now on Pfizer’s board. That may help in the approval process. * Though times are exceptional, and any vaccine may be better than no vaccine, knowledge of Pfizer’s maneuvers dilutes the joy of their 90% effective news. Ravi
Lmao wow. Yeah I heard some of this earlier. Didn’t know it was THAT egregious though.
I wonder if anyone will even notice though as it would require putting energy into criticizing anything other than the election
> I wonder if anyone will even notice though as it would require putting energy into criticizing anything other than the election
Not really; they seem to have gone out of their way to be election-relevant:
> The first analysis was to occur after 32 volunteers — both those who received the vaccine and those on placebo — had contracted Covid-19. If fewer than six volunteers in the group who received the vaccine had developed Covid-19, the companies would make an announcement that the vaccine appeared to be effective. The study would continue until at least 164 cases of Covid-19 — individuals with at least one symptom and a positive test result — had been reported.
> In their announcement of the results, Pfizer and BioNTech revealed a surprise. The companies said they had decided not to conduct the 32-case analysis “after a discussion with the FDA.” Instead, they planned to conduct the analysis after 62 cases. But by the time the plan had been formalized, there had been 94 cases of Covid-19 in the study.
> Gruber said that Pfizer and BioNTech had decided in late October that they wanted to drop the 32-case interim analysis. At that time, the companies decided to stop having their lab confirm cases of Covid-19 in the study, instead leaving samples in storage. The FDA was aware of this decision. Discussions between the agency and the companies concluded, and testing began this past Wednesday.
https://www.statnews.com/2020/11/09/covid-19-vaccine-from-pf...
So they had a plan in place to release interim results as soon as 32 cases were detected, but then in late October they decided they wanted to alter the plan. And just to make sure the original plan couldn't happen no matter what, they also stopped their ongoing testing, choosing to resume it on November 4th, when they learned they had dramatically exceeded their revised goals.
What about the following interpretation?
"Up to 2.5 billion people will not have to compete with those who actually depend on a vaccine that can be easily transported because the infrastructure in North America and Europe allows a continuous ultracold chain as it is required by the Pfizer vaccine."
Suddenly, this sounds good, doesn't it?
I just heard that the vaccine is impractical is it needs -70C for storage.
The pandemic is orders of magnitude more impractical than a end-to-end -70C logistics chain.
That's a fake news. It's -80C.
So "fake news" is what we say for "wrong" nowadays? I am getting old as it seems.
Pfizer expects the vaccine to be good for up to one week at -8°C to +2°C, so the difference in stability or storage life at -70°C or -80°C might be a small issue compared to what difference it makes on the requirements on the continuous cold chain. It sounds like using dry ice might be a 90/10 solution, as Michael Seibel would call it: get 90% of the result with 10% of the effort.
A slightly wrong number is not "fake news".
He was being sarcastic
Am I missing something as to why anyone finds this outrageous?
My understanding of the "wrongness" of insider trading is using privileged information to make profit and thus "stealing" from other investors - at least that's what I've picked up from Matt Levine.
In this case he's trading on very public information. Anyone who has held Pfizer stock for a while must have at least considered if this news was the moment to cash some of it in.
When he made the decision to sell he'd have known the trial results would have been coming in, but couldn't have known what they'd be. If they'd just come back with a "no go" the stock would have tanked. If anything it seems like an unfair disadvantage, every other long term investor in Pfizer can decide on the day of the announcement what to do, the CEO has to bet months in advance.
It's quite simple, these trial results don't just get automatically published. He knows he has a sale date coming up, if the results are good, he times the announcement just before his sale - causing a pop to his stock (that likely will mean revert eventually) causing the peak share price to occur around the time he sells. If the results are bad he delays the announcement to the day after his sale, making sure he secures a good price before the inevitable drop. The CEO of Pfizer shouldn't be timing market moving evens based on his personal stock trading.
I don't know if it is outrageous, but I can see why it might sound shifty. He probably didn't know the results when he made the decision to make the trade, but he might have decided the date of the announcement based on his trade date.
The question here is: is "Let's make the announcement on Wednesday. Wait, I have a trade scheduled on Tuesday, so let's move it to Tuesday because I expect an overreaction from the market." illegal or unethical? Or maybe he had no influence on the date and got lucky.
It's highly unusual to announce such early results of a trial. I don't know if it's illegal, but it sure smells funny.
This interim analysis was made in agreement with the FDA. Interim analyses are released all the time.
Probably the biggest break Pfizer will get in the next decade. Why is this on hackernews? That shouldn't be surprising to anyone, but rather a pretty normal thing to do if you have stocks: selling high.
In principle the CEO could have post-/preponed the press announcement knowing that his sale is due. I don't know if that alone makes the sale legally dubious, but there are some ethical considerations here. If he postponed the press release, could it be that he expects the markets to overreact, i.e., are the actual findings not as good as the release makes them sound? If he preponed the release, did he potentially release unsound information to improve his own valuation? It would be better for him if he could prove that there was no involvement from his side into the schedule.
True - perfect example of buy the rumour, sell the news.