On Stock Sales and CFOs

Another element of the Menu Foods scandal has emerged (I like Pet Connection for updates). The company’s chief financial officer (CFO), Mark Wiens, relieved himself of half of his shares of Menu three weeks prior to the actual recall. Naturally, post-recall, the price per share plunged. Wiens claims the timing of his sale was a "horrible coincidence."

Let’s deconstruct:

• February 20-Menu received its first reports of problems with its products.
• February 26-Menu begins testing on 50 live animals.
• Shortly thereafter, some of the animals die (we’re not sure exactly when).
• February 26 and 27-CFO Mark Wiens sells 14,000 shares for $90,000.
• March 16-Recall announced.
• April 10-The other half of Weins’ shares is now worth $54,000, so the share price has dropped almost 40%. Wiens calls the timing of his sale a "horrible coincidence."

Menu is an Ontario-based company, and as such is not under regulation of the Securities and Exchange Commission (SEC). Canada doesn’t have unified securities regulation (its provinces and territories have their own regulators) like we do with the SEC. Ontario has the Ontario Securities Commission (OSC), which consider Wiens an "insider," just as he would be here (officers in a company are, by definition, insiders). "Insider information" is material, confidential information, or information that is material and otherwise not (yet) disclosed to the general public. Trading (e.g., selling your shares) on insider information is prohibited according to Canadian law.

But, if Wiens were to be prosecuted, the prosecutor must show that he sold his shares because of the information prior to February 26th (that there was reason to test products, that product testing commenced, and perhaps that animals died). Meanwhile, officers (and other investors) often set certain times each year where they sell a certain percentage of a certain sector or company–no matter what–just to maintain proper diversification. Selling a chunk of shares isn’t a crime in itself, and proving that Wiens knew about the possible contamination and then sold because of it could be very difficult.

The director of communications at the OSC, Wendy Dey, recently said that investigating insider trading allegations is a huge priority for the OSC.

I hope that’s true.