By Gaurika Anand
Your friend plans to sell their car today, and they receive a tip that the car they own is no longer in production and has the potential to become a vintage car pretty soon, which will have an appreciated value. You have the same car, and you sell it around the same time as you were not privy to this information. If you had this information, would your decision be different? Now when the information is public, how do you feel about your friend knowing it earlier?
Insider trading is the trading of stocks of publicly held companies when a corporate insider is privy to materialistic or non-public information. Yet, there is a wayward line that segregates illegal insider trading from legal insider trading. Pfizer, a mogul in the pharmaceutical industry recently faced a controversy which debates the extent of this wayward line.
An instance of questionable morals: alleged illegal insider trading by Pfizer CEO Albert Bourla on the day the vaccine was announced. Albert Bourla sold 62% of his shares the day Pfizer and BioNTech announced their COVID-19 vaccine trials’ effectiveness.
The SEC has announced that the Pfizer CEO was well within his rights, and any allegations of illegal insider trading are false. Under 10b5-1 of the SEC, a company executive can declare trading of shares in advance and put it in a kind of “auto-pilot” mode, that is, on a predetermined date, a preset number of shares will be traded. Likewise, Pfizer CEO disclosed his plans to SEC on August 19, 2020. By the book, this is not illegal. In fact, Albert Bourla had no option but to sell the shares he declared.
However, it is interesting what a little research can find. On August 20, 2020, a day after the CEO declared his plans to sell his shares, Pfizer and BioNTech shared positive data on the mRNA vaccine they were developing. While it is believable that management was not hopeful of a vaccine being developed, the number of shares the
CEO declared is a red flag. If Dr. Bourla was going to sell 62% of his shares right after receiving positive results, what is to stop us from believing he knew he would make a huge profit? In the jumble of stock trading, timing is key. We do not know what Dr. Bourla knew when he declared his trade, but we know that he could control the announcement’s timing. Had the announcement been made on Tuesday instead of Monday (the date set for selling of CEO’s shares), he would have earned $4.8 Million instead of $5.6 Million.
Loopholes, bending the rules, gray areas, all are a getaway from financial crime, but what about morals and ethics? Insider trading is cheating the SEC and millions of people who trade every day, hoping they are well informed. This gray area acts as an advantage to corporate insiders. While the importance of morals in the corporate world is not clear, this gray area distorts the market mechanism itself. Stock trading is governed on the principle of supply and demand, but with homogenous information. Professor Mink believes “The tolerance for violation of norms has increased, and the fact that a gray area exists in the law means that it is easy to ‘play’ in that space with no repercussions. So while it looks bad, it is probably not illegal.”
We could call this $5.6 million a lucky hand or a calculated move, but we cannot call it illegal.