Thursday, March 24, 2011

Is Michelle Stacy a shrewd insider, a psychic or just plain lucky?

In my last blog post I asked the following question about Green Mountain Coffee Roasters (NASDAQ: GMCR) Keurig Division President Michelle Stacy:
Is Michelle Stacy a shrewd insider, a psychic or just plain lucky? Perhaps the people who designed and administer her purported 10b5-1 trading plan are geniuses?
On February 14, 2011, Green Mountain Coffee stock opened for trading at $42.14 per share. At 11:00 AM Reuters reported:
Green Mountain Coffee Roasters Inc's (GMCR.O) shares fell as much as 4 percent after Starbucks Corp (SBUX.O) said it plans to announce a new product for the single-cup coffee market, a move that could threaten Green Mountain's dominance in the fast-growing sector.
The stock price of Green Mountain shares dropped to a low of $41.53 per share in intra-day trading.

At around 3:25 PM (Eastern) that afternoon, Green Mountain Coffee shares spiked up from just under $42 per share to $45 per share. See the Bloomberg chart below (times posted on chart are Central time):

Click on image to enlarge.

At around 3:34 PM (Eastern) that afternoon, Reuters citing an unnamed source reported:
Starbucks Corp (SBUX.O) and Green Mountain Coffee Roasters (GMCR.O) are in partnership negotiations, a source close to the talks told Reuters on Monday, sending Green Mountain shares surging.
On that same day, Michelle Stacy exercised 10,000 options at $6.20 per share and simultaneously sold her shares at $45.13 per share through her 10b5-1 trading plan. Green Mountain Coffee's shares did not trade above $45 per share until after 3:25 PM (Eastern) according to the above chart. Green Mountain Coffee shares closed at $46.35 per share.

On February 15, 2010, the market value of Green Mountain Coffee stock closed at $43.53 per share, a drop of $2.82 per share from the previous day's closing price of $46.35 per share.

Timing of Michelle Stacy’s other stock sales

On August 13, 2010, Michelle Stacy exercised 30,000 options at $6.20 per share and simultaneously sold those shares at $30.95 per share.

On September 13, 2010, exercised 5,000 options at $6.20 per share and simultaneously sold those shares at $35.20 per share.

On September 20, 2010, Green Mountain Coffee claimed that it was notified by the Securities and Exchange Commission (SEC) of an informal inquiry concerning its “revenue recognition practices and the Company’s relationship with one of its fulfillment vendors.” However, the company did not disclose news of the SEC inquiry to investors until seven days later.

On September 21, 2010, Michelle Stacy exercised 4,375 options at $6.20 per shares and simultaneously sold her shares at $37 per share. In addition, Stacy exercised another 625 options at $9.14 per share and simultaneously sold those shares at $37 per share.

After the market closed on September 28, 2010, Green Mountain Coffee finally disclosed news of the SEC inquiry to investors. In addition, the company disclosed that it discovered an "immaterial accounting error" involving its K-Cup margin percentages which resulted in a $7.6 million cumulative overstatement of pre-tax income in financial reports issued from 2007 to June 26, 2010. A significant amount of those accounting errors came from the Keurig segment which is headed by Michelle Stacy.

On September 29, 2010, the next trading day, Green Mountain Coffee stock dropped $5.95 per share to close at $31.06 per share as investors reacted to news of the SEC inquiry, a 16.1% drop in market value that day.

By October 11, 2010, the market value of Green Mountain Coffee’s shares dropped to $26.87 per share, far below the price per share that Stacy sold her stock on August 13 ($30.95), September 13 ($35.20), and September 21, 2010 ($37.00).

On October 21, 2010, I raised questions about the timing of Michelle Stacy's stock sales.

On October 28, 2010, Stacy belatedly filed amended Form 4 reports and claimed she established a Rule 10b5-1 trading plan on August 13, 2010. A Rule 10b5-1 trading plan provides certain safe harbors which help executives defend against potential allegations of illegal insider-trading by removing their discretion to decide when their stock is bought or sold. She amended certain SEC Form 4 filings for her stock sales on September 13 and September 21 to reflect her 10b5-1 trading plan. However, her sale of 30,000 shares on August 13 was not pursuant to a 10b5-1 trading plan. According to Stacy's amended SEC filings, her 10b5-1 trading plan only covered future stock transactions.

On November 5, 2010, Michelle Stacy exercised 10,000 options at $6.20 per share and simultaneously sold her shares at $35 per share.

On February 7, 2011, Michelle Stacy exercised 10,000 options at $6.20 per share and simultaneously sold her shares at $40.00 per share. In addition, she exercised another 5,561 options at $9.14 per share and simultaneously sold those shares at $40 per share.

On Thursday, March 10, 2011, Green Mountain announced a “strategic relationship” with Starbucks. In reaction to the news, the market value of Green Mountain Coffee common stock rose $21.07 per share to close at $61.71 per share, or a 46% increase from the prior day’s closing price. That same day, Michelle Stacy exercised 9,375 options at $6.20 per share and simultaneously sold them at $55.54 per share, $11.90 per share higher than the previous day's closing price per share.

Other Green Mountain insiders were not as fortunate as Michelle Stacy. MarketWatch reported:
Green Mountain insiders miss big option gain
Options priced after Green Mountain stock jumps 41% in single day
SAN FRANCISCO (MarketWatch) —March 10 was options day for insiders at Green Mountain Coffee Roasters. Too bad it was the day the stock hit a record high and the options are presently worthless.
Their latest batch of stock options were priced Thursday as Green Mountain(GMCR 58.86, -2.85, -4.62%)  shares ran up 41% on news the company had struck a deal for Starbucks (SBUX 36.56, -1.41, -3.71%)  to make coffee for its Keurig single-cup coffee brewers. Read Starbucks, Green Mountain brew K-Cup deal.
According to filings Friday afternoon with the Securities and Exchange Commission, eight directors were each granted 2,300 stock options at Thursday’s closing price of $61.71 a share — a record high on a split-adjusted basis. The previous day the stock had closed at $43.64.
From August 13, 2010 to March 10, 2011, Michelle Stacy made a gross profit of $2.689 million from exercising options and selling shares.



In the quarter ended December 25, 2010, Green Mountain Coffee's Keurig segment reported a $1.955 million loss before taxes.

Class-action lawsuit

The amended class-action complaint alleges that Green Mountain Coffee knew that the SEC was poking around as early May 2010 or three months before Michelle Stacy claims she adopted a 10b5-1 trading plan. See paragraphs 68, 69, 103, and 104). If a corporate executive already has nonpublic knowledge of certain adverse events such as undisclosed weaknesses in internal controls, accounting errors, or an SEC inquiry, a 10b5-1 plan cannot provide a safe harbor against illegal insider trading allegations.

Final comment

Every corporate insider should seek out who designed and administers Michelle Stacy's 10b5-1 trading plan and hopefully, they can be as lucky as she is. In any case, Stacy's got great timing!

Written by,

Sam E. Antar

Disclosure

I am a convicted felon and a former CPA. As the criminal CFO of Crazy Eddie, I helped my cousin Eddie Antar and other members of his family mastermind one of the largest securities frauds uncovered during the 1980's. I committed my crimes in cold-blood for fun and profit, and simply because I could.

If it weren't for the heroic efforts of the FBI, SEC, Postal Inspector's Office, US Attorney's Office, and class action plaintiff's lawyers who investigated, prosecuted, and sued me, I would still be the criminal CFO of Crazy Eddie today.

There is a saying, "It takes one to know one." Today, I work very closely with the FBI, IRS, SEC, Justice Department, and other federal and state law enforcement agencies in training them to identify and catch white-collar criminals. Often, I refer cases to them as an independent whistleblower. I teach about white-collar crime for professional organizations, businesses, and colleges and universities.

Recently, I exposed GAAP violations by Overstock.com which caused the company to restate its financial reports for the third time in three years. The SEC is now investigating Overstock.com and its CEO Patrick Byrne for securities law violations (Details here, here, and here).

I do not seek or want forgiveness for my vicious crimes from my victims. I plan on frying in hell with other white-collar criminals for a very long time.

I do not own any Green Mountain Coffee Roasters or Overstock.com securities long or short. My investigations of these companies are a freebie for securities regulators to get me into heaven, though I doubt I will ever get there. My past sins are unforgivable.

4 comments:

A said...

What does the SEC have to say about this possible insider trading and fraud? Green Mountain Coffee has much to gain with a partnership with Starbucks, although I think Green coffee is much better than Starbucks anyway. - Love the blog too!

Sam E. Antar said...

I like the coffee too, but not the financial disclosures and the timing of her stock sales.

Novice Investor said...

Any recent updates to this story that you could write about please?

Sam E. Antar said...

The proposed amended class action lawsuit against GMCR cites analysis from the blog and make allegations of securities fraud against Michelle Stacy

http://www.scribd.com/doc/87007741/2012-03-27-Horowitz-vs-Green-Mountain-Coffee-Roasters-Proposed-Second-Consolidated-Amended-Class-Action-Complaint-Marked-Copy

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