How biotech executives profit from legal insider trades
By Damian Garde,
STAT
| 08. 08. 2016
Untitled Document
A biotech company called Seres Therapeutics got some bad news late last month: Its all-important infectious disease drug failed in a clinical trial, sending its stock price down roughly 70 percent. Investors took a bath.
But in the two days before that failure became public, three top Seres executives sold a combined $2.5 million worth of the company’s stock. They made a tidy profit. They avoided nearly $2 million in paper losses.
And it was entirely legal.
That’s because the executives took advantage of an obscure federal regulation that allows insiders to buy and sell shares as long they set up the trades in advance.
In theory, it prevents company leaders from profiting off information not yet made public. But researchers digging through thousands of such trades have shown that they consistently outperform the broader market, suggesting biotech bigwigs might be gaming the system at the expense of everyday investors.
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