Equifax Executives Sold Stock Worth Over $1 Million Before Announcement of Giant Data Breach

Patterico  "You may have heard about the Equifax breach in which hackers got access to Social Security numbers of up to 143 million people — probably including you and me. Looks like some Equifax executives may have profited (or at least avoided losses) on the news:

Three Equifax Inc. senior executives sold shares worth almost $1.8 million in the days after the company discovered a security breach that may have compromised information on about 143 million U.S. consumers.

The trio had not yet been informed of the incident, the company said.

The credit-reporting service said late Thursday in a statement that it discovered the intrusion on July 29. Regulatory filings show that three days later, Chief Financial Officer John Gamble sold shares worth $946,374 and Joseph Loughran, president of U.S. information solutions, exercised options to dispose of stock worth $584,099. Rodolfo Ploder, president of workforce solutions, sold $250,458 of stock on Aug. 2. None of the filings lists the transactions as being part of 10b5-1 scheduled trading plans.

"You probably will not be surprised to learn that the stock plummeted today on the announcement. Had these executives held on to the stock, they would have lost a lot of money. But instead, knowing about the breach, they sold the stock before the breach was announced.

"It sounds outrageous, but the company claims that the sales represented “a small percentage of their Equifax shares.” Different people define “small” differently. I have a feeling the SEC will be taking a close look at this. If there were hijinks, someone might be going to prison. (Then again, maybe these dudes are members at one of Trump’s golf clubs and will skate. You never know!)

It is an interesting question whether insider trading should be illegal. The fact that we may recoil at it does not mean it is necessarily bad for society. And there are rational arguments that suggest that insider trading is a good thing, because it helps spread information. As economist Bob Murphy says:

In a nutshell, insider trading is beneficial because it moves market prices closer to where they ought to be. Those profiting from “inside knowledge” actually share that knowledge with the rest of the world through their buying and selling.

"Murphy argues that if you parse out who actually loses when insider trading occurs, it’s not the public at large, but just other investors who might have done better through dumb luck. Meanwhile, when insiders profit from their greater knowledge, that knowledge is spread, to the benefit of the public." . . .