Floyd Norris is one of the most insightful business reporters for the NY Times. In this column today, Mr. Norris raises the issue that, if former WorldCom CEO Bernie Ebbers really masterminded an elaborate fraud at WorldCom, why didn’t he sell his WorldCom stock before the stock price collapsed? Rather than getting out rich, Mr. Ebbers went from being a billionaire to being so deeply in debt that personal bankruptcy appears inevitable. He borrowed against his wealth, lived well, and overpaid on other investments. When WorldCom stock began to fall, margin calls forced him to sell one big slug of stock, but then he got WorldCom’s incredibly compliant board to approve WorldCom’s guarantee of his loans. Now, with most of his liquid assets sold, Mr. Ebbers still owes the company more than $300 million.
Interestingly, a very similar situation pertains to former Enron Chairman and CEO, Ken Lay, who was purchasing Enron stock up until the company filed its chapter 11 case in December 2001.
Houston's Clear Thinkers
Longtime Houston attorney Tom Kirkendall's observations on developments in law, business, medicine, culture, sports, and other matters of general interest to the Houston business, professional, and academic communities.
what i don’t understand
is why anyone would think
that lay or ebbers or the rest
would NEED to commit insider trading
when they had the financial tiger
by the tail already — lavish parties,
corporate perks, multi-million dollar
annual bonuses — why bother with selling
their stock?
they presumably looked at the stock
and otpions as their retirement funds,
and took all the cash salary and bonus
money for “day-to-day” expenses.
you and i just aren’t able to think in
these large, grandly overspending ways.
so i think — wearing the right set of
high-octane financial contact lenses — we
both might be able to understand why
they did not sell off their stock and
flip their options in total.
p e a c e