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Insider Selling Rises 55% to $70.5 Billion

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From Times Staff and Wire Reports

So much for “buy low, sell high.”

U.S. executives and directors have sold $70.5 billion of shares in their companies this year--55% more than in 1999--while stock purchases by company insiders fell for the first time in five years.

Selling was dominated by officers of computer-related and Internet companies, including Microsoft, Dell Computer, Ariba and Brocade Communications Systems. All are members of the Nasdaq composite index, which rose to record levels in March before plunging more than 50% as the U.S. economy slowed.

“The technology guys are jumping ship,” said Louis Navellier, head of Navellier & Associates.

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Meanwhile, the beaten down state of many companies’ shares wasn’t exciting a lot of buying among insiders. Open-market stock purchases by insiders fell for the first time since 1995--to $3.27 billion, 21% less than in 1999.

The largest buyers were from telecommunications, broadcasting and tobacco companies, including cigarette maker Philip Morris.

The figures for buying and selling are as of Saturday.

Shareholders say they don’t like to see large-scale selling by insiders--defined as executives, directors and big individual investors--because it erodes confidence in a company’s prospects. In addition, owning a stake can help motivate management, some investors say.

Insider selling accelerated as the year wore on and Nasdaq wore down. By the second half of the year, insiders were selling at their fastest pace in two years. In the eight weeks ended Nov. 8, insiders made 2.2 sales for every purchase, according to Vickers Weekly Insider Report. That’s the fastest selling pace since June 1998.

Persistent selling doesn’t necessarily mean a stock is headed for a fall. Executives may sell some of their holdings to finance a home purchase, to diversify their investments or for other reasons.

Moreover, in recent years, technology companies’ insiders typically have done the most selling. The companies tend to use stock options rather than big salaries to compensate employees, leaving executives with much of their wealth tied up in stock and options.

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While insiders generally get most of their shares via options, there is usually just one way for them to sell: in the open market.

Insiders at Microsoft sold $10.5 billion of stock, more than seven times the sales of any other company. Executives and directors at Dell sold $1.4 billion, $1.1 billion at Brocade and $953 million at Ariba.

The biggest individual seller was Microsoft co-founder Paul Allen with $8.5 billion, followed by Microsoft co-founder Bill Gates with $1.5 billion and Michael Dell, chief executive of Dell, with $1.1 billion.

Gates has a program in which he periodically sells a small fraction of his Microsoft holdings to diversify his investments, a company spokeswoman said. Allen, who said in September that he would resign from Microsoft’s board, left the company’s operations in 1983 to pursue independent investments.

Dell has said its CEO regularly sells shares, which are small in proportion to his total holdings.

On the buying side, insiders at Philip Morris, the largest tobacco company, were among the most active, with open-market purchases of $91 million. Insiders at cigarette maker Loews bought $122 million of its shares.

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Philip Morris has been the top-performing stock in the Dow Jones industrial average this year, rising more than 95% as investors bet the worst of its legal woes are over.

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