Different cycle, same levered tricks

Executive “stars” are up to the same levered tricks seen before previous market meltdowns.   Bankers are happy to make the loans, accountants often recommend the tax deferrals. But in the end the practice leaves markets more vulnerable to steep losses and other investors (individuals, retirement accounts and pensions) in financial peril.  See: US executives pledge stock for loans, raise margin call concerns.

“U.S. corporate executives and directors have pledged at least $15 billion of their own company stock holdings to secure personal loans, in spite of recent examples of these arrangements creating bigger losses for other investors during selloffs.

Most U.S. companies say they limit or prohibit stock pledging because they can increase downward pressure on a company’s stock price if an executive’s pledged shares are sold under duress, such as a margin call. Still, some boards make exceptions for their stars, corporate disclosures show. And they rarely disclose what these insiders are doing with their borrowed money…

“Nothing good can come from these arrangements from a broader shareholder perspective,” said Mark Borges, a principal at Compensia, an executive compensation research firm in San Francisco. “When you pledge shares you are essentially giving someone else the ability to sell the stock out from under you. It exacerbates the situation when they are sold into an already anxious market.”
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