see the SEC is crooked and corrupt too cnssecuritieslaw/2014/03/05/1187.htm Study Finds SEC Employees Sell Stock Before Price Drops By LORRAINE BAILEY (CN) - Securities and Exchange Commission employees make significantly above-average returns by selling stock ahead of a drop in price, a new study by a Emory University Professor and a Georgia State University Ph.D. student suggests. The study, titled The Stock Picking Skills of SEC Employees, found that SEC employees do not perform above average on their stock purchases, but are very good at picking the right time to sell. Their sales appear to systematically dodge the revelation of bad news in the future, researchers found, by selling stock before the SEC files a costly enforcement action. The studys authors, Emory University Professor Shivaram Rajgopal and Georgia State University Ph.D. student Roger White, obtained data on the trading activities of SEC employees under a Freedom of Information Act request. They then created a portfolio mimicking SEC employees buys and sells, finding that risk-adjusted abnormal returns per year for all securities was about four percent, but jumped to 8.5 percent for U.S. common stocks. The wildly disparate returns for foreign and U.S. common stocks suggests that SEC employees are not surprisingly adept stock pickers, but instead trade ahead of losses for securities over which they have more investigative powers and regulatory authority, Rajgopal and White said. The results of the study raise questions about the conflicts of interest that arise among enforcement officials. Given that the SEC is charged by Congress with enforcing insider trading regulations against corporate officers and other market participants, our findings indicating abnormal risk adjusted profits on trades by SEC employees are arguably troubling, researchers said. The SEC did not track data on its employees stock trades until 2009, when it also instated new rules requiring employees to obtain clearance for any securities transaction, and forbidding them from buying or selling stocks of firms under SEC investigation. But the researchers found that employees execute many trades shortly before the announcement of an enforcement action, some even the day before, indicating that the monitoring mechanisms the SEC planned to impose to discourage such practice are either weak or nonexistent. The SEC explained to the Washington Post that before staff can work on an enforcement action, they must divest from the target company. Therefore, most of the sales were required by SEC policy. Staff had no choice. They were required to sell, SEC spokesperson John Nestor said.
Posted on: Fri, 21 Mar 2014 14:30:23 +0000
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