Insiders Are Selling at Rock-Bottom Prices

For those of you who've been waiting, the June restricted stock sales numbers are in. What's the prognosis? Strangely, well into the month -- in fact, right up until the final week -- I would have said that things were looking up, because up to that time insider selling had been rather subdued.

A convincing late-month surge has clouded the picture, however. All told, corporate insiders and other holders of unregistered shares filed their intentions to sell (via an SEC Form 144) more than $12 billion worth of stock in June. As you may recall, total insider selling peaked at more than $20 billion in February, and hung just a bit lower in March, before falling off to $6 billion in April.

On the one hand, there have been fundamental changes in the market that have bolstered these numbers, most notably, the past few years' burgeoning IPO market. On the other hand, there is no denying that restricted stock sales represent new supply on the market, not to mention a drain on market liquidity.

For this reason, I was less than overjoyed to see the number creep back to $10 billion in May. I'm even less so now. True, we're nowhere near February's peak of $22 billion, but with June totals back up to $12 billion, restricted stock sales once more bear watching.

The Selling Inches Back Up Restricted Share Filings (in millions of dollars of value)

At the same time, the list of companies where insiders are willing to part with shares at fractions of their recent highs continues to grow. Some of these situations are surprisingly difficult reads: Despite some truly frightening second-quarter nose dives, many of these stocks remain well up for the past 24- or even 12-month periods.

Because of that, one can almost rationalize the insiders' desire to lock in what remains of their paper profits. At the same time, it is worrisome to see them sell at a fraction of some recent prices. Whatever your take, it seems that investors in these companies, be they die-hard loyalists or opportunistic bargain hunters, should at least be aware that insiders are selling at what some might view as bargain-basement prices.

Selling at the Lows... ...Or Abandoning Ship
Company	Ins	Dates	Shares	Price	52-wk High
Clarent Corp. (CLRN)	5	5/5-5/31	499,862	35-60.5	178.75
Genzyme Trans. Corp. (GZTC)	5	5/5-6/12	140,519	18.25-20.53	50.00
Curagen Corp. (CRGN)	6*	5/5-6/9	908,000	34.41-39.69	128.25
US Interactive Inc. (USIT)	3**	4/26-5/24	245,000	10.03-17.05	92
Engage Inc. (ENGA)	4*	6/22-6/27	370,000	13.5-16	94.50
*Includes Form 144 intentions to sell stock. **One USIT director purchased 3,000 shares on May 3. Source: First Call/Thomson Financial

You'll notice a pair of biotechs - Genzyme Transgenics (GZTC Quote) and CuraGen (CRGN Quote) -- made the short list. By this, I don't mean to imply that biotech insiders are selling across the board. In fact, in many cases, insiders are sitting tight, despite the harrowing ride. More than anything, their representation here is an upshot of the manic run-up and subsequent depression that afflicted nearly the entire sector.

Less easily dismissed is the absence of telecom names on the list. Not only have we seen a decided lack of insider selling at the beaten-up, smaller telecom service providers, but an accumulation trend appears to be developing in the group as well. Perhaps the most intriguing of these are ITC DeltaCom (ITCD Quote), where insiders stepped in to acquire more than 90,000 shares after the stock broke in March, and CenturyTel (CTL Quote) where insiders acquired more than 85,000 shares near the bottom in May.

Because telecom insiders tend to hold a lot of options, their accumulation will tend to be subtle. All the more reason to watch the group closely as the summer wears on.