Stock Buyback Scrutiny Intensifies as Democrat Threatens Bill

(Bloomberg) -- Buybacks faced fresh political furor Wednesday with Democratic Senator Chris Van Hollen threatening to propose legislation that could make it more difficult for executives to sell shares after corporations announce they are repurchasing stock.

Stock Buyback Scrutiny Intensifies as Democrat Threatens Bill

Key Insights

  • Maryland’s Van Hollen, speaking to reporters, said he wants the Securities and Exchange Commission to make it harder for corporate insiders to unload stock right after buyback announcements inevitably lead to pops in stock prices.
  • If the SEC doesn’t take action, Van Hollen said, he will introduce legislation that directs the regulator to examine its rules around the issue.
  • Van Hollen cited “startling” research by SEC Commissioner Robert Jackson that showed executives sell more stock than normal after buybacks are announced, and that the insiders’ selling can hurt long-term investors.
  • "It raises concern that buybacks are a way to maximize executive pay," Van Hollen told reporters during a press briefing.
  • Such a bill would face long odds of passing the Republican-controlled Senate, though Florida’s Marco Rubio has said he wants to crack down on tax benefits companies get from buying back shares.

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  • Senate Minority Leader Chuck Schumer, a New York Democrat, has said that buybacks are distorting the market.
  • The SEC’s Jackson has been a frequent critic of corporate executives selling shares after buybacks.

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