Lululemon Chairman Dumps $50 Million In Stock Days Before CEO Resigned
Can you say insider trading? Lululemon Athletica founder and chairman Dennis “Chip” Wilson apparently sold $50 million in stock last week—just four days before CEO Christine Day announced her resignation and shares took plummeted a full 17 percent. By selling his shares early, Wilson walked away with about $8 million more than the stock would be worth just days later.
Although it paints a rather sinister picture, Wilson’s sale is perfectly legal. According to Reuters, the SEC allows company executives to trade their own stock based on private information in a preset plan known as 10b5-1. But 10b5-1 is controversial in its own right. The plan was designed to take the timing of sales out of insider’s hands. But the Wall Street Journal has found it gives board members a deal of latitude to shift around planned sales. In fact, of 20,237 executives who traded company stock the week before major announcements, the Journal found 1,418 recorded stock gains averaging 10 percent. Only 786 lost money in the sales. The 10b5-1 plans may be designed to take the timing of sales out of insiders’ hands, but according to the Wall Street Journal, board members have are allowed leeway in setting up or amending the plans.
The whole point of these plans is that if material events occur, as they inevitably will, the insider has an alibi against insider-trading accusations,” David Yermack, a finance professor at the New York University Stern School of Business, told the Wall Street Journal.
Although he used 10b5-1 plans in the past, Wilson began selling large stakes in Lulu last month based on a plan he established with Merrill Lynch in December. The plan allowed him to sell as many as 5.7 million shares during an 18-month period. In fact, he sold 2.3 million shares totaling $184.4 million so far this year. Still, the June 7 sale was the largest. One can’t help but wonder how far in advance he became aware of Day’s planned departure.
Mr. Wilson has had no influence on trades conducted by Merrill Lynch pursuant to either of these plans,” his assistant emailed the Journal. “Any suggestion of impropriety by Mr. Wilson is inaccurate and irresponsible.”