Heroes Wanted: Stan Lee Media Struggles to Stay Afloat
The Rules and Regs
Stock sales by insiders of a publicly traded company are common, legal occurrences when properly completed. However, a company insider may be in violation of the Securities Exchange Act if he or she buys or sells stock in a company while in possession of non-public information that would be considered important to a reasonable investor. An insider who knows material, non-public information about a company has two choices: either disclose the information to the public, or refrain from trading. Additionally, if an insider who holds more than 10% of a corporation's stock buys and then sells within a six month period, he or she must repay all of the profits realized to the company.
Violating insider trading laws can result in a wide range of punishments, including criminal liability, civil penalties and private suits. A person who has been harmed by illegal insider trading has the right to bring a private civil suit against the insider for damages.
While at this stage there is no indication that any insiders at Stan Lee Media violated federal securities law, it is likely that the unusual timing and size of insider sales of the company's stock will be an issue the SEC examines in its investigation.
In a release announcing the SEC probe, Stan Lee Media reported that it had terminated the employment of Stephen Gordon, executive vice president of operations, as well as Peter F. Paul. In addition, the company had uncovered "evidence of possible misuse of company funds by former members of its management team."
Moreover, the company will not comment about the existence of any connection between the discharge of Paul and Gordon, the SEC inquiry and the internal investigation.
A Thickening Plot
What went wrong? What led to the discord between Paul, Gordon and Stan Lee Media's management? What made a company co-founder contribute to the downfall of Stan Lee Media's financing package by declaring his intention to dump a portion of his shares at such a vulnerable time? The answers remain unclear.
In a statement to Dow Jones Newswire, Paul defended his actions, saying he "never intended to sell any stock," and that the shares sold were liquidated as security for a loan. Paul also criticized the methods used by Stan Lee Media to raise money, saying they made the company's stock vulnerable to short-selling by investors.
Regardless of the reason for Paul's trades, Stan Lee Media's flurry of insider sales certainly had a negative impact on the stock's price. Insider sales are a valuable and frequently used tool in assessing the health of a company and the sustainability of that company's stock price. Investors who watched the company's co-founder and second largest shareholder, along with a company officer and five other insiders, sell heavily into weakness in Stan Lee Media's share price must have thought twice about holding onto their own shares.
As more details surrounding the Stan Lee Media nose-dive are uncovered, Paul is likely to remain at the center of controversy. Last August, as Paul organized a massive campaign fundraiser for Hillary Rodham Clinton, the Washington Post exposed Paul as a convicted felon who two decades ago served three years in prison and had his license to practice law suspended after he was convicted of cocaine possession and attempting to defraud the Cuban government of almost $9 million.
The Rules and Regs