Insider Trading Newbie Question

[yoyomama]

I apologize for maybe starting to wear out the subject of "offering common shares to raise capital" but I'm still trying to get a handle on it.

I notice that several of these stocks(probably all of them) that offer up a gazillion shares of diluting common stock as a way to raise capital....at the end of the trading day before the announcement is made....there are a ton of shares being bailed on. I'm assuming somebody knows that this is going to happen & they dump the stock...right? I don't want to sound like a babe in the woods or anything but...this is true right? Insiders have to know before the news is put out & they sell big...correct.

When ETFC did this recently I noticed there was a lot of selling in the last few minutes...I should have got out but was praying it would gap up..not. The announcement was made right after 4pm.

Anyway...my question, insiders have to know beforehand that the offering of common shares is going to made, right?

[yupyup]

They will know, however legally they can not sell using that information before it has become public. For that matter they can not use any insider information to make a decision regarding their stock sale or buy.

[Florida]

Insiders have to know, as they are usually the ones that make the actual decisions as to when the shares will come on the market. As had been said, "insiders" cannot trade based on this knowledge, and in fact, cannot trade, buying or selling, within a given time frame of any news or action taking place that could materially effect the value of the stock. In fact, there is usually a "window" of time established within each company when the stock is available to trade by insiders, and the PR and legal departments of the companies take special care during these times to limit any information regarding the companies to become public to allow "insiders" to trade in and out of their positions.

Now this does not mean that information does not leak out to "non-insiders" who may take action based on what they have learned. As to the legality of these trades, it depends on the situation, just ask Martha Stewart.

Now, from a pratical standpoint, we have all known that these institutions were going to be doing this following the findings of the stress tests. So the best thing to do is not hold any positions overnight in these stocks because they will eventually have to issue the shares, and the stocks will usually drop as a result. On the plus side, most have recovered, or will recover from the initial shock of the move, providing their comapny is solid, but it could be painful in the short term. (by the way, BAC is up this morning from the close as I type this).

[yoyomama]

Thanks for the info...yeah leaked for sure.

As far as knowing it would happen, being new was a bad thing. A very bad thing! I was told these were volatile stocks but didn't even realize that was something that could be done. Now I see it can be done at a whim. The entire Market is down from a year ago... any company no matter how revered can do this as a way to raise capital. It's just something I've learned the hard way.

C has not done this yet have they...got to be coming soon?

[jacobnbr1]

You got a watch those little stocks especially if they are dilluting..

To find out if they are dilluting is the answer cause most of the time you don't even know it is happening cause there is a delay factor that comes into play.

Here is three words that you need to bail if you hear. >1. dilutting, reverse split , secondary offering. (also keep a check on the outstanding shares, check it everyday)

The good news is that i heard all three of the words in CTIC and it still went and did what it did but it took about a year or so and for NITE to stop.


The bad news is when you play these you are playing with a pack of wolfs and will get mulled if you don't watch your a$$ ;)

[Bolimomo]

Anyway...my question, insiders have to know beforehand that the offering of common shares is going to made, right?
I am sure... the insider, as well as the investment bankers (usually a syndicate) know before hand when the secondary offering will come out and roughly at what price.

But I don't think there are much insider trading in secondary offerings.

There are usually 2 circumstances where a company will do secondary offerings.
1) The company is doing really well. They want to expand more and so need more capital.
2) The company is doing really badly. They want to get more cash to save their ass(ets).

We are clearly in the second category. And typically the stock price under such circumstances would not be very good.

The insider trader trading usually is when the insiders know they have something bad coming (a bad quarter, a court ruling not in favor of the company, bad press, etc.) before the stock price reflects such impacts. That's when they would sell out their shares, exercise their options, buy puts, etc. to cash in. With financial stock prices already got beaten to death (and slightly bounced), I think it's less likely that there are insider tradings. The time for BofA insiders to get out would have been last summer when BAC was at 40.