Selling Stock When Bad News is Coming? Bad, Bad Form

Microsoft's Xbox 360 extended warranty announcement, which carried a $1.15 billion charge to earnings along with it, was certainly not good news for the company or the H&E Division. One might even call a charge of this magnitude material, even for a company of Microsoft's heft. This means, as a matter of both prudence and law, that one shouldn't be selling in advance of such news if someone is in possession of material non-public information. Then what on earth is going on when the a person intimately tied to such an announcement, say, the President of the H&E Division, sells a goodly chunk of stock shortly before such an announcement is made public? From today's GameDaily BIZ:

Last month, we reported that President of Microsoft's Entertainment & Devices Division, Robbie Bach, sold off roughly $6.2 million in company stock prior to the Xbox 360 warranty extension, which cost Microsoft $1.15 billion.

As it turns out, however, according to a report from MarketWatch, Bach actually sold $3 million more in stock than was previously reported. Bach sold just over $3 million worth of company stock on May 1, but Microsoft spokesman Eric Hollreiser said the additional $3 million in sales were not registered in a timely manner with the SEC "as the result of an administrative error."

Just as before with Bach previous stock sale, Hollreiser said that the additional $3 million was completely unrelated to Microsoft's Xbox 360 repair announcement.

Now given the legal and compliance controls and infrastructure in place at Microsoft, I am virtually certain Mr. Bach's actions were within the letter of the law. It appears that there was around a two month time lag between the stock sales and the warranty announcement. That said, legal implications aside, this smells bad. Were I a MSFT investor (which I am not), how would it make me feel. Two words: pissed off.  Now the announcement only dropped the stock around 1.5%, but is that the point? You've got to believe that such a big decision on the part of Microsoft (the warranty charge decision) had to have percolated over several weeks, and had to have included Mr. Bach at the table. If this is the case, then isn't it better to be overly prudent and cautious and to black out such an executive from trading company shares? I'd think so. But hey, that's just me.

Comments

[K.S.Reddy]

It is very very bad to sell stocks by a responsible person before bad news is coming about the company.

[Nick Fenton]

I definitely agree!. It is highly likely that this gent knew about the warranty extension. It had to, at least, have been a topic of heavy discussion!

Shady...

[Yaser Anwar]

There's a plethora of negative news coming out on MSFT, it's like their bleeding it out, that I don't think the market really cares.

These guys have really gotta start adding value. Can't throw money at every problem, an approach they've tried and failed.

The saying "Build it and they will come" definitely doesn't apply.

Give me something creative, something out of the box, and don't price it so high that you miss out on the main game-buying population (who like their consoles at 200-300 max). Also, stop copying AAPL w/ copy cat-designs like ZUNE; for Chr**t and your shareholders sake- WAKE UP!