Insiders Selling at Bear Stearns

By DAN DORFMAN
March 28, 2008

As news broke yesterday that the chairman of Bear Stearns, James Cayne, sold his entire stake in the brokerage earlier this week for $61.3 million, experts were reminded of an earlier stock sale, when nine insiders sold nearly $50 million worth of shares just three months shy of the firm's near collapse.

According to documents filed yesterday with the Securities and Exchange Commission, Mr. Cayne sold 5.6 million shares at $10.84 a share on Tuesday.

Bear Stearns's fall has been brutal, with the firm's shares tumbling from a 52-week high of $159.36 to a recent low of $2.84 following the March 16 announcement that JPMorgan Chase & Co. would buy the bank for just $2 a share. It later upped that offer to $10 a share, and the stock has since traded above that price, closing yesterday at $11.23 a share.

While the top officers and directors of the country's fifth largest investment bank have taken a shellacking since the collapse of the company's stock, some key executives were able to salvage some of their wealth by selling shares before it was known the bank was close to insolvency.

About three months ago, several Bear Stearns insiders, including Mr. Cayne and CEO Alan Schwartz, began selling some of their shares. In the week between December 21 and 28, nine insiders unloaded a total of 549,034 of the company's shares in the open market at prices ranging from $86.78 to $89.01, or an average of $88.81.

All told, that selling spree netted them $48.8 million. At the stock's current price, those shares would be worth just $5.5 million.

The majority of the shares that were sold were accumulated via Bear Stearns' Capital Accumulation Plan, a part of the employees' deferred compensation program where Bear Stearns workers were given shares as part of their benefits.

A Bear Stearns spokesman, Russell Sherman, declined to comment on the December sales and also would not comment on Mr. Cayne's recent unloading of Bear Stearns stock.

One source close to the brokerage firm tells me the timing of the sales was related to the tax liabilities associated with the firm's CAP plan.

The other Bear Stearns insiders who sold stock in December were Jeffrey Mayer, executive vice president; Samuel Molinaro, chief financial officer; Michael Minikes, treasurer; Jeffrey Farber, comptroller, and directors Paul Novelly, Vincent Tese, and Alan Greenberg.

The heavy December selling took many pros by surprise. "It was a clear sign of bearish insider activity," according to Jonathan Moreland, who has been tracking the buying and selling actions of corporate insiders for nearly two decades and currently heads up research at InsiderInsights, a weekly New York newsletter that monitors insider activity. The sales "relayed a message that Bear Stearns was a stock to avoid or to short," he said.

Most noteworthy was Mr. Novelly's sale because he had built up much of his Bear Stearns stake at considerably higher prices, including $7.4 million he received in March of last year at around $148 a share. Mr. Novelly, who is CEO of privately held Apex Oil Company, is a member of Bear Stearns' audit, corporate governance, and nominating committees, and chairman of the bank's finance and risk committee. On December 28 he dumped 50,000 shares at $86.78 a share, for a total of $4.3 million. The 50,000 shares would now be worth just about $555,000.

Wall Street has been abuzz with talk that the SEC is looking into Bear Stearns' December insider transactions, but a knowledgeable source at the brokerage tells me the agency has not contacted the firm. The SEC declined comment.

dandordan@aol.com