On Friday January 30, representatives of Heartland Payment Systems (NYSE:HPY) contacted me via email regarding my recent article which had asked some tough questions regarding the timing and nature of multiple large stock sales during the months leading up the revelation that the company was the victim of a security breach.
In August 2008, Mr. Carr put in place a 10b5-1 plan to sell Heartland stock. The company publicly announced this plan by press release on August 8th, 2008, stating:
Mr. Carr and Robert Baldwin, President and Chief Financial Officer, have adopted prearranged trading plans to sell a portion of their company stock over time as part of their individual long-term tax planning, asset diversification, and liquidity strategy. Following the completion of trades contemplated under the plan, both Carr and Baldwin will continue to hold a substantial ownership interest in Heartland Payment Systems. Included in Carr’s holdings are 2,375,000 shares acquired through options exercised in the first quarter of 2006, none of which were used to satisfy the tax obligations incurred at the time the options were exercised. The stock trading plans were adopted in accordance with Rule 10b5-1 under the Securities and Exchange Act of 1934, as amended, as well as the Company’s policies with respect to sales of shares held by insiders. Under the Carr plan, a maximum one million shares can be sold over the next year, corresponding to the number of new performance-based options granted to Carr by the Board of Directors. Under the Baldwin plan, a maximum 78,180 shares can be sold, representing his options that expire in January 2009.
At the time of this announcement, Mr. Carr was not under any trading restrictions pursuant to the company’s insider trading policy and was not in possession of any material non-public information concerning the company. Under this 10b5-1 plan, programmed sales of company stock were made on Mr. Carr’s behalf, and he had no discretion regarding the timing or other aspects of those sales.
Although he was not required to do so, Mr. Carr terminated his 10b5-1 when the company confirmed the security breach it disclosed in the company’s press release of January 20, 2009. As has been reported, Heartland first learned of a potential problem from the card associations on October 28th of last year, well after the announcement of this 10b5-1 plan. Heartland categorically denies that Mr. Carr was aware of a potential security breach at the time he adopted his trading plan.
These are important issues to stakeholders, and legitimate questions to ask. I appreciate Heartland’s concern, and I will continue to follow the story as it unfolds.
Disclosure: No Holdings