Are Sirius XM Insider Sales a Buy Signal?

By Brandon Matthews

The question must now be asked. When are insider sales considered a buy signal? If you asked me this question yesterday, my immediate response would be a firm “NEVER!” Today, however, that position has changed. As ridiculous as this statement must seem, I ask that you continue to read.

In May of this year, Sirius XM (SIRI) awarded shares of stock to its executives in lieu of cash bonuses. All of the appropriate filings were made with the Securities & Exchange Commission. It was also announced in the filings that the shares would vest in 20 separate tranches and the bonus shares would be sold as they vested. Many considered this to be a wise move by the company to keep large numbers of shares from being dumped on the market and create the wrong impression. I’m sure many can recall the blazing speed in which Howard Stern sold his shares many years ago. By establishing this vesting schedule, the company is better able to award its employees while doing the least amount of damage to current shareholders by not creating an unnecessary panic. In most, if not all, of these cases in fact, these same insiders continue to hold much larger positions than the awarded shares represent.

We have been tracking these sales on the Satwaves Forums. Shares that were scheduled to vest on May 20, June 4 and June 18, 2009 did in fact vest and were sold into the market. Again the proper documentation was filed with the SEC. Up until then, everything was as it should have been.

Of course this is Sirius XM Radio we are talking about, and even this most simple task of scheduled stock vesting and insider sales could not go a full month without drama. As you may have guessed by now, the most recent vesting and insider sales date of July 08, 2009, tranche number 4 in the series, has come and gone without a filing. I’ll grant you that at this time it could merely be an oversight on the company’s part, but that’s just not my style. The previous filings clearly state the intent of these insiders:

1. The restricted stock units vest in twenty tranches on: 5/20/09; 6/4/09; 6/18/09; 7/8/09; 7/22/09; 8/5/09; 8/19/09; 9/3/09; 9/18/09; 10/2/09; 10/21/09; 11/4/09; 11/18/09; 12/3/09; 12/23/09; 1/6/10; 1/21/10; 2/5/10; 2/18/10; and 3/4/10. The Company has reserved the right to accelerate the vesting of these restricted stock units. (Employee) has adopted a 10b5-1 sales plan pursuant to which he/she intends to sell the common stock received by her on each of the vesting dates.

What we seem to have here is a case of insiders deciding that now is not a good time to sell, which to me is akin to insiders buying the stock outright. It signals to me that these same insiders believe that there may be more upside potential in waiting. Waiting for what is the question we need to be asking ourselves. We have been witness to many positives coming from Sirius XM Radio this past quarter. The company launched its hugely popular iPhone and iPod Touch app. Might Sirius XM be ready to report an earnings beat? How about an outright profit for the second quarter? Might a deal of some kind be in the works?

The only thing I can be sure of is that if insiders have decided not to sell preplanned stock sales at this time, I should think long and hard before selling myself. The next tranche is scheduled to vest on July 22.

Position: Long SIRI

Comments

[R A F:]

The flip side of this is the reaction of the "outside" marketplace recently: If Insiders have decided this is a good time to hold, and not sell - presumably "shorts" in the marketplace must be getting more nervous with recent price performance. There are sound fundamental reasons the stock has been firming, as noted in comments above. Technically, SIRI has been building a bottoming formation over the last six months and now projects increasing strength. This has been seen in the tendency of support to contain recent pullbacks and recoveries to resume as this is observed. The excessively large short position - 194,820,020 shares as of 6/30 was an increase of 29,846,671 shares over the preceding two week interval, and yet SIRI has remained firm and steady all through this within dips of only a few cents. As the price is now again threatening to break .40 on the upside, "shorts" have good reason to feel the heat. Each 1 cent move on a short position of 194,820,020 shares represents a loss of $1,948,200.20! With the technical framework now projecting upside potential toward 1.00+ over the next six months to one year - and the SEC considering reinstating more restrictive regulation of short selling in coming months - there is every reason to believe shorts are now likely to become more aggressive on the buy side, to cover their substantial exposure.

Jul 15 06:59 AM

[BigVinnie:]

If sirius would of done this with Howard Stern, and the other big personalities like Martha Stuart, and even Bubba the love sponge, we wouldn't of seen such a sharp decline in the stock from 2006-mid 2008. If you notice the stock wasn't on the huge decline until after Howard cashed in his shares. Howard is a great personality but he isn't into satellite radio, he is in it for the money.

Tranches are a good thing because it is able to maintain company value. A company that we can use as an example of tranches is SPWRA and SPWRB (sunpower corp). No one within the company can sell shares unless specified on a date, and the shares cannot be sold during quarterly reports, usually when people dump if the quarter is bad. It forces the inside trader to become a long term investor.

Jul 15 09:34 AM

[Traveler 1:]

I like both comments above. Anyone that buys this stock now will be rewarded many times over the next few mo's. I have it in our cars and computers at home and work and it has been great!! I also continue to add to my holdings. The shorts will get stung big time on this one!!!

Jul 15 09:54 AM

[Mr. Stupid:]

Last Q I predicted not so good numbers and I was correct. I am predicting this Q to be better for the investor.

First Q was an anxious time for investors. We are now starting to get all that anxiety behind us and turn the corner.

I hope so, I have too much to lose......LOL

Mr. Stupid

Jul 15 12:22 PM

[relayer75:]

10b-5 plans might have specific instructions to sell or not sell above or below a certain price. The whole point of a 10b-5 plan is that it gives irrevocable instructions for sales at certain points in time if certain conditions are met, taking the sale decision out of the hands of the holder. This creates a safe harbor against charges of insider trading. I wouldn't read too much into the lack of a filing for July. There are a lot of variables, but the insiders "deciding" not to sell in July is not one of them; 10b-5 plans don't work that way.

Jul 16 08:54 AM

[Stockpickin...:]

great write up! Good job!

Jul 16 08:42 PM

[Marco Hickey:]

Good write up, but I'm sure Sirius won't report a profitable quarter for quite a while. The stock however could rise on a good outlook. Maybe the insiders are expecting auto sales to increase, which would be good news for (SIRI). The bad news is: if they beat, the stock is less than 4% shorted, which wouldn't result in too much of a short squeeze. We'd need some Sirius speculation first and along with that short interest will increase, and then a beat would be nice and I believe would cause a bigger move up. Holding my shares, I wish they'd hurry up and rally.

Jul 17 03:08 AM

[long roh:]

This comment is spot on and the author is wrong. I haven't looked at the specifics here, but I'd also point out that the insiders could be subject to Section 16 short-swing liability (in and out within 6 mos.) if the author were correct that the plan deviation was discretionary. More likely is that somebody screwed up the filing.

On Jul 16 08:54 AM relayer75 wrote:

> 10b-5 plans might have specific instructions to sell or not sell
> above or below a certain price. The whole point of a 10b-5 plan is
> that it gives irrevocable instructions for sales at certain points
> in time if certain conditions are met, taking the sale decision out
> of the hands of the holder. This creates a safe harbor against charges
> of insider trading. I wouldn't read too much into the lack of a filing
> for July. There are a lot of variables, but the insiders "deciding"
> not to sell in July is not one of them; 10b-5 plans don't work that
> way.

Jul 17 10:05 AM