Twin Cities corporate executives have been heavy sellers of their own personal stock holdings as markets soared in the months leading up to last week’s record highs on the Dow Jones industrial average.
Jim Cracchiolo, CEO of Minneapolis-based Ameriprise Financial Inc., has sold more than $52 million worth of Ameriprise stock since November, the largest gross take of any Minnesota executive, based on buy-and-sell data from Thomson Reuters.
“The sell-to-buy ratio for insiders [in recent months] is about 3-to-1,” said Ben Silverman, research director at Insiderscore.com, which tracks sales by company officers and directors. “The insiders got a lot of cheap stock [at recession-depressed prices since 2007] and they’re selling.’’
The insider selling that started last October indicates that 2012 executive compensation for Minnesota’s 100 largest public-company CEOs could hit a record. We won’t know the details until May, when the last of the 2013 proxy statements are sent to shareholders. That’s where companies disclose details about executive cash-and-stock compensation.
Silverman said the strong selling is partly seasonal.
“And you’ll see more of it because in February and March the restricted stock they’ve been given typically vests,’’ he said. “And these guys also have stock options coming up for expiration every year.”
Cracchiolo, a low-profile New Yorker who has pulled off several successful acquisitions in the consolidating financial services industry, has run Ameriprise for more than a decade. He grossed more than $30 million in two sales last November. Shares of Ameriprise, the investment management, insurance and financial planning conglomerate, rose nearly 50 percent in 2012.
A caveat here: The gross proceeds do not reflect any cost that the executive may have incurred through the purchase of option shares issued in past years. Many executives now also benefit from restricted stock, which costs them nothing, but which vests over time as is available to them as long as they meet certain board-approved goals.
In 2011 Cracchiolo was the fifth-highest-paid Twin Cities public-company executive, with total compensation of $11.2 million.
Stephen Hemsley, CEO of health insurance juggernaut UnitedHealth Group, won the Minnesota CEO pay sweepstakes last year with cash-and-stock compensation of $48 million. In December, Hemsley grossed $32.3 million in a single sale of UnitedHealth stock.
However, the single biggest sale of stock was bagged by Larry Lukas, the founder of Proto Labs in 1999, which also is Minnesota’s most successful IPO in recent years. Proto Labs, a globe-spanning manufacturer of Internet-designed prototypes and quick-turnaround production runs of precision parts, has risen in value from about $16 per share to more than $48 per share since it sold stock to the public in February 2012.
Lukas, a career technology inventor, and several other individual insiders and venture capitalists sold a portion of their holdings in a secondary offering of stock last November.
CEO Brad Cleveland, who took Proto Labs from concept to commercial success over the last decade, sold $12 million worth of stock in recent months.
Experts who watch trading by corporate insiders note that insider buying is usually more predictive of the direction of a stock or the market than selling. It’s said that insiders only buy options or other shares when they believe the stock is undervalued and that company performance will help drive the share price higher.
But insiders sell for a lot of reasons, including personal wealth diversification, to buy a house, pay taxes or fund a divorce settlement. Or simply because the share price has reached the high end of expectations and it’s time to take winnings off the table.
Corporate executives recently have been selling at the fastest pace since the stock market moved upward quickly in early 2011. Bloomberg and Pavilion Global Markets, a Montreal-based trading firm, calculated in February that there were $3 worth of insider sales for every $1 in buys.
That doesn’t necessarily signal that surging equity markets have peaked or that the market is headed for a correction. The market has been driven so far this year by “retail investors,” individuals and some institutions that have jumped back into stocks after being scared away by the 2007-09 sell-off that sliced the stock market in half amid the global financial panic and recession that hit bottom in March 2009.
Now with the economy in recovery, insiders are cashing in.
“A lot of [executives] have waited some 13 years for their assets to see the light of day,” Damon Vickers, chief investment officer of the Seattle-based brokerage Nine Points Management and Research, told Bloomberg News. “If you’re 61 years old and the majority of your net worth is tied up in your company’s stock, you may be inclined to liquefy some of that.”
Staff writer Patrick Kennedy contributed research for this column.