March 06, 2019

Van Hollen Announces New SEC Findings on Stock Buybacks

Data Clearly Shows Corporate Executives Can Use Buybacks to Cash Out at High Prices to the Detriment of the Company, Investors

Today U.S. Senator Chris Van Hollen (D-Md.) announced new findings on stock buybacks from Securities and Exchange Commission (SEC) Commissioner Robert Jackson showing that corporate executives can use buybacks to cash out at high prices to the detriment of their company and investors. Senator Van Hollen wrote to Commissioner Jackson in December asking for more information about how executives use buybacks after he questioned SEC Chairman Jay Clayton on this issue in a Senate Banking Committee hearing. According to the data laid out by Commissioner Jackson in his response to Senator Van Hollen, not only can corporate executives use buybacks to enrich their personal wealth, but in doing so they decrease the value of the stocks in the long-term. In response to these findings, Senator Van Hollen called for Chairman Clayton to host a roundtable and review current buyback rules.

“Corporate executives should not be able to cash in at the expense of their investors. With stock buybacks on the rise as a result of the Republican tax law, these new findings are even more concerning. It’s clear that the SEC must review its current buyback rules to do more to protect investors. I plan to introduce legislation in the coming weeks to ensure they will do just that,” said Senator Van Hollen.  

“Our securities laws should encourage executives to pursue the kind of sustainable value that creates the stable jobs American families count on. But SEC rules governing buybacks do not distinguish between those that allow executives to cash out on short-term stock-price pops and those that reflect the company's long-term needs,” said Commissioner Jackson in his response letter to Senator Van Hollen.

The letter notes two main findings, that “insiders sell more stock when they announce buybacks than on an ordinary day and that “insider selling on buybacks is associated with worse long-term performance.”

The text of Commissioner Jackson’s response to Senator Van Hollen can be found here.