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Tech Industry

Insider sales surge as market stumbles

While the Nasdaq composite index is sliding to a year-end loss of nearly 40 percent, insiders at tech companies are running for the exits: They have sold $47.3 billion worth of stock, up about 94 percent from last year.

While the Nasdaq composite index was sliding to a year-end loss of nearly 40 percent, insiders at tech companies were running for the exits: They sold $47.3 billion worth of stock, up about 94 percent from last year.

For example, insiders at Internet consulting company Scient sold shares valued at $251 million. Today, the proceeds from those sales would be more than enough to purchase the entire company, according to InsiderScores.com. Company officers, executives and directors are considered insiders.

"Insider sales came in higher this year than last year, and it's something you wouldn't expect, given the market's break in March and the way prices have come down," said Paul Elliott, an insider analyst with market research firm First Call.

But Elliott and other analysts noted that a strong market during the first three months of the year, and a large number of tech companies coming off their IPO lockups, helped fuel the surge. A company that launches an IPO restricts insiders from selling shares for a defined period of time. This lockup period usually lasts for three months.

"We started to see the market appreciate in 1999, but it was heavily reflected in values toward the end of the year and the first quarter of this year," said Lon Gerber, research director for InsiderScores.

Eric Greenberg, founder and a director for Scient, sold nearly 3.2 million shares with a value of $168.5 million, according to InsiderScores. When Greenberg sold nearly 690,000 shares in late January, the stock was trading around $88. But by the time he finished the last of his selling in early November, the stock was down around $17. He still holds some 8.6 million shares.

Scient shares have plunged 95 percent to about $3 from a 52-week high of nearly $134 in March. The company's market value currently stands around $220 million.

Greenberg was far from alone. Microsoft co-founders Paul Allen and Bill Gates ranked first and second, respectively, with Allen selling 84 million shares worth $7 billion and Gates shedding 21.6 million shares with a value of $1.6 billion, according to InsiderScores. Michael Dell, chief executive of Dell Computer, ranked third, selling 18 million shares valued at $958 million.

The insiders
Insider selling by tech company insiders jumped dramatically in 2000.

Year Shares sold Value of shares
  2000     855 million     $47.3 billion  
  1999     844 million     $24.4 billion  
  1998     812 million     $18.3 billion  
  1997     866 million     $19.7 billion  
Source: InsiderScores.com
"A lot of the guys who sell the most stock are company founders. Most of them are involved in philanthropic activities and sell a lot for that," Gerber said. "Usually you see Gates, Allen, Dell and Broadcom's Henry Nicholas on the list. They are among the largest sellers, and by default, the ones who have the greatest wealth."

Companies that generated the largest volume of insider sales were Microsoft at 112.6 million shares worth $9.1 billion, Dell with 24 million shares worth $1.2 billion and Broadcom with 6.7 million shares worth $1.2 billion, according to InsiderScores. The figures exclude shares sold by venture capitalists, others companies and trusts.

Gerber noted that tracking insider sales proved to be a valuable indicator of the market's direction.

"In February, we saw insiders sell $9.76 billion shares. That was the greatest one-month total on record and a month before the markets correction began," he said.

The second-highest month was August, with $8 billion shares sold by insiders. The Nasdaq showed signs of recovery during the summer with the index reaching 4,206 in August. But since then, the tech-heavy Nasdaq has lost further ground and currently stands around 2,500.

As the markets have tanked, Elliott said he has been disturbed by the lack of interest among insiders to jump back in at these discounted prices. That was not the case after Black Monday in 1987, during the prolonged correction in 1990, and after a steep sell-off in the fall of 1997, he noted.

"People are looking for insiders to jump back in," he said, "but it's not happening at the level it did in previous years."