Analyzing Suspicious "Executive Insider Trading" Activity through Form 4 Analysis

Hey All.

We wrote a tool that analyzes every single one of the thousands of Form 4s filed each day to pick out ones that we believe could be indicative of potential insider trading activity. We do this by verifying that the executives bought, sold, or were granted stock, that was not part of any pre-arranged plan (yearly bonuses, performance bonuses, incentive plans, 10b5-1 plans, tax sell-offs, etc).

This is a fairly new undertaking, but we were able to spot both $SLRX and $YTEN before they made huge announcements that bumped their stock prices up 27% and 40% respectively.

When the market isn't in a massive free fall, we generally only find one or two companies a month. Now with this crazy market times, we have been finding a bunch of executives that are buying up stocks at low prices (this can be useful for pointing us towards companies that may be worth looking deeper into since their executives seem to believe the stock is at a good price for purchasing).

You can find all of our work here, but we will be posting/discussing weekly recaps in this thread. So let's start with last week.

1) W. P. Carey Inc. ($WPC) - Insider Purchases
*Unfortunately, we were a little slow in getting our analysis on W.P. Carey out (we found them on March 20th) as we were busy filtering through all the Executive Compensation activity, so the stock has rebounded 18% since we found them. However, they are still a prime candidate to keep an eye on as they are down significantly over the last month.*

From Yahoo Finance:

W. P. Carey ranks among the largest net lease REITs with an enterprise value of approximately $21 billion and a diversified portfolio of operationally-critical commercial real estate that includes 1,204 net lease properties covering approximately 138 million square feet.

W. P. Carey was having a good start to the year, reaching a peak stock price of $88.27 before crashing 44% over the last month to a closing price of $49.36 on March 20th (their closing price on March 27th was $60.34).


The recent Form 4 activity shows that none of the executives’ purchases were particularly large from a percentage of their total holdings standpoint, but that is because all of the executives (except for the Chief Accounting Officer) already own over $20M in stock. All of the executives except for the Chief Accounting Officer spent over $400,000 repurchasing stock while the 3 directors increased their holdings by 37%, 20%, and 11%.

The only executive that did not purchase any stock is their CFO.


The individual Form 4 forms show give no explanation for the purchases, so we can assume that it isn’t part of any sort of pre-arranged plan.


The Proxy Statement verifies that W. P. Carey does have ownership guidelines stating that the CEO must hold 6x their annual salary in the stock, the other named executives must hold 3x their annual salary, and the Directors must hold 5x their cash retainers.

Everyone except for one of the Directors holds a substantial amount more stock than they are required even after taking a 44% haircut on the stock price over the last month.

* The Chief Accounting Officers salary was not present in the most recent Proxy Statement *


W. P. Carey shows some intriguing insider purchasing activity and the substantial amount of money their top executives have invested in the company shows that they have a lot of skin in the game and are heavily incentivized to get that stock price back up to where it was before the crash.

2) Solar Capital Ltd ($SLRC) - Purchasing Activity
From Yahoo Finance:

Solar Capital Ltd. is a business development company specializing in secured debt (first lien unitranche and second lien), subordinated (unsecured) debt, minority equity, and strategic income-oriented control equity investments in leveraged middle market companies.

Like most companies in the Asset Management industry, Solar Capital got crushed by this market downturn falling from their recent high of $21.12 down to their close of $10.62 on March 25th ( a 49% decline).


The recent Form 4 activity shows quite a bit of purchasing activity by the executives since the beginning of March (especially by the co-CEO, Michael Gross).


The table below shows that all of the executives (and one director) made sizable 6-figure (and one 7-figure) purchases (except for the Chief Compliance Officer) and all made very sizable percentage increases to their holdings.


You will notice above that Mr. Gross made a 7-figure “indirect” purchase on top of his almost $800,000 direct purchase. Looking into his Form 4 shows us that most of that indirect ownership is through the Employee Stock Plan, Solar Capital Investors, and Solar Capital Investors 2, which both him and the other co-CEO, Bruce Spohler, have an ownership stake in.


According to their Proxy Statement, it does not appear that Solar Capital has any ownership guidelines. This leads us to believe that these executive purchases could have been made because the executives believe the stock is at a great buying price.

3) Westlake Chemical Partners ($WLKP) - Purchasing Activity
From Yahoo Finance:

Westlake Chemical Partners LP acquires, develops, and operates ethylene production facilities and related assets in the United States. The company's ethylene production facilities primarily convert ethane into ethylene. It also sells ethylene co-products, including propylene, crude butadiene, pyrolysis gasoline, and hydrogen directly to third parties on a spot or contract basis.

Westlake has had a rough start to the year. They have fallen from a stock price of $22.81 at the start of the year down to a low of $10.31 before making their way back up to a closing price of $16.08 at the close of the market on March 25th.


Over the last two weeks, there has been a substantial amount of executive purchasing activity at $WLKP (Form 4 activity here).


The purchasing was led by the CEO who bought up nearly $1,000,000 worth of shares between March 10th and March 24th as the stock continued its decline. None of the other purchases were particularly large from a dollar value perspective, but they all notably increased their amount of shares owned from a percentage perspective. We also find that Randy Woelfel, the sole director that made purchases, bought stock in the company for the first time (at a very good price too).


Taking a look at the CEO’s Form 4, we first can verify that these purchases were not part of any pre-arranged plans. We also notice that Mr. Chao and his family own a significant number of shares through other entities and trusts.


We couldn’t find any proxy statements for Westlake, but their 10-K does not mention any ownership guidelines that require executives and directors to own a certain amount of stock. It appears that these executives may just believe the stock is at a very good price point and are buying it up.