If you want proof that timing is everything, consider the case of Jonathan Boehm. One day’s difference cost him $390,000.
Boehm is an executive at DST Systems Inc., a Kansas City-based company that provides financial and information services to other companies.
One recent Monday, Boehm sold nearly 21 percent of his DST stock — 20,000 shares — for $64.50 a share.
The next day, Tuesday, DST shares surged. A rumor had hit Wall Street that DST might be sold — for $84 a share.
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Indeed, DST did agree to be sold — announcing the deal that Wednesday — for $84 a share to a Connecticut rival. Had Boehm waited even a day, he would have been able to collect an additional $390,000 for his shares.
The strangest part is that Boehm’s stock sale went down according to plan, specifically his plan.
Boehm sold the shares under a Rule 10b5-1 plan.
Corporate insiders sometimes set up such plans to separate themselves from the decision to buy or sell shares of the companies they help run. It’s a defense against potential claims that they bought or sold based on inside information, a practice barred by federal law.
Boehm had set his plan in May 2017. It included “a pre-established schedule of sale dates and price points” for transactions involving his shares of DST Systems, according to his report to federal securities officials about his ill-timed stock sale.
Typically, a broker or other financial agent monitors these plans and carries out stock purchases or sales when the conditions in the plan are met.
Boehm’s filings with the Securities and Exchange Commission show his Rule 10b5-1 plan had sold shares only one other time. That sale came eight days after he’d set the plan up last year. It was at $62.50, when adjusted for a stock split last year.
Exactly what the terms were in Boehm’s plan, his filings didn’t say. And he declined a request to talk about the transaction.
Either way, leaving $390,000 on the table is big money, even for the second-highest salaried corporate executive at DST. Boehm earned $490,000 in 2016, the most recent year for which information is available. Currently, he is CEO of DST Health.
It’s not clear exactly what Boehm’s choices were.
It’s possible he didn’t know DST was about to be sold. Such sales involve extensive negotiations and are divulged even inside the company on a need-to-know basis.
Assuming he did know, was there anything Boehm could have done to stop his ill-timed stock sale?
Technically, an executive could terminate a plan before its scheduled end, but it’s not considered a “best practice,” said Arielle Katzman, an attorney who has worked with Rule 10b5-1 plans and co-authored on them for the Harvard Law School Forum on Corporate Governance and Financial Regulation.
Katzman said executives often set up plans to run for six months to two years. She said executives might have concerns about “bad optics” associated with stopping a plan while having “material non-public information.”
Boehm obviously did not end his plan ahead of his Monday stock sale.
It’s also possible Boehm didn’t foresee the Monday stock sale coming. These plans are intended to be self-executing and require no tending or actions by the executive.
He might not have noticed that his conditions for a sale were about to be met, or he might have forgotten what they were.
One path Boehm didn’t have available: Executives can’t change the terms of their plans if they have meaningful inside information such as a pending sale of the company.
Despite the bad timing on his recent stock sale, Boehm has plenty to look forward to as the DST sale to SS&C Technologies progresses. He still owns 75,518 DST shares, worth more than $6 million at the $84 deal price.