Tag: insider giving
Is “insider giving” a potent substitute for insider trading?
Most everyone knows that trading on the basis of material non-public inside information is likely to get you in trouble with the law, but charitable giving on the basis of MNPI—maybe not so much. As reported in this article in the WSJ, a new study from a group of business and law school professors looked at “insider giving,” or, as the study authors describe it, “opportunism posing as, or at least muddled with, ordinary philanthropy.” In essence, according to the WSJ, with insider giving, the donor “tim[es] the donation of a stock to a charity around inside information about the stock. That way, you take a tax deduction before bad news sends the share price tumbling or after good news sends the price higher—and the gift delivers a bigger deduction than you would have gotten otherwise.” The donation is not only tax deductible, it’s also exempt from capital gains tax that would be due on the appreciation in value upon the sale. One of the authors characterized these donations to the WSJ as “suggest[ing] more than chance….The fact that large shareholders can determine or choose—with pinpoint accuracy—the average maximum price over a two-year period when they give gifts is surprising.’” The study authors argue that the practice is “far more widespread than previously believed,” and relied on by insiders, including large investors. Insider giving, they conclude, “is a potent substitute for insider trading.” It’s worth remembering that it was a study reported in the WSJ about stock option backdating that kicked off the option backdating scandal of the mid-2000s (see, e.g., this news brief, this news brief and this news brief). Could “insider giving” be the new option backdating scandal?
You must be logged in to post a comment.