SEC’s Jackson Calls Out Corporate Executives Riding Buyback Wave (1)

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By Andrea Vittorio

Corporate executives are personally benefiting from the “unprecedented wave” of stock buybacks announced in the wake of the Trump administration’s tax cuts, according to an analysis by the Securities and Exchange Commission’s newest Democrat.

SEC Commissioner Robert Jackson’s staff studied close to 400 buybacks over the past 15 months. They found that corporate executives, who get stock as part of their pay packages, sold theirs twice as often during the eight days immediately following a buyback announcement, when the stock price tends to jump, than on an average day.

During that eight-day period, executives sell, on average, more than $500,000 worth of stock each day. That’s five times how much they usually trade in the days leading up to the announcement, according to the analysis.

“So executives personally capture the benefit of the short-term stock-price pop created by the buyback announcement,” Jackson said in a June 11 speech at the Center for American Progress, a left-leaning think tank. The former law school professor was recently appointed by President Donald Trump to fill a Democratic seat at the five-member SEC.

Jackson wants the commission to update its rules to limit executives from using stock buybacks to “cash out” their company shares. The SEC didn’t return a request for comment.

Buyback Wave

American companies announced a record $242.1 billion in stock buybacks during the first quarter of 2018, data from investment research firm TrimTabs show. Repurchase announcements haven’t slowed down since, with TrimTabs’ tally for the second quarter already at $275.2 billion.

“The Trump tax bill has unleashed an unprecedented wave of buybacks, and I worry that lax SEC rules and corporate oversight are giving executives yet another chance to cash out at investor expense,” Jackson said.

Some companies are using the tax cuts as an opportunity to make long-term investments, according to Alison Omens, managing director of programs and strategic engagement at the nonprofit research organization JUST Capital. Target Corp., Boeing Co., and FedEx Corp. topped a recent JUST Capital ranking for having pledged to pass their tax cut-related savings on to workers or to invest it in job creation.

Other companies are “telling a good story but not actually taking” that opportunity, Omens said during a panel after Jackson’s speech.

JUST Capital assumes that any tax cut proceeds not already earmarked for other uses will go back to management and shareholders, in part through buybacks.

To contact the reporter on this story: Andrea Vittorio in Washington at avittorio@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com

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