Shares of online jewelry retailer Blue Nile (NASDAQ:NILE) fell nearly 12% yesterday following the announcement in an SEC filing -- one could argue that management should have press-released it, but that's not a major point -- that three top executives, including Chairman and CEO Mark Vadon, adopted pre-arranged trading plans under the commission rule 10b5-1.
Since we've only discussed such plans once in a brief reference to Krispy Kreme (NYSE:KKD), I thought it made sense to throw a little light on exactly what they are and what they mean.
These plans essentially exist to allow corporate "insiders" to buy -- or, in this case, sell -- shares at regular intervals without risk of being cited for potential insider trading. They're pre-written contracts instructing an agent to move shares using a pre-determined formula that sets out the timing, price, and amount of the transaction. (In this case the Blue Nile execs' plans run for a year and cover less than 10% of their holdings.) The transactions are disclosed using the SEC's usual Form 4.
These aren't uncommon: Besides Krispy Kreme, a quick Web search easily turns up information on plans currently or previously held by people at Oracle (NASDAQ:ORCL), Siebel (NASDAQ:SEBL), SPX (NYSE:SPW), Papa John's (NASDAQ:PZZA), and many others. Just pop "10b5-1" into Google and you'll find plenty of examples. So why were Blue Nile investors upset today?
I don't know them personally, but I can guess. While we generally counsel Fools not to worry too much about insider selling -- there are just too many reasons why a person might sell stock to read a lot into it -- it's also true that Blue Nile has underperformed the S&P 500 since its May IPO, so it's not as though its managers are riding hot stocks. (The shares are, however, up from their offer price.)
Given the stock's trading volume yesterday, which came in around 10 times recent averages, it seems many investors feel management should be eating, rather than planning to dispose of, its own cooking. Following mixed Q3 financial results as the company looks to build its business ahead of the holidays, it's perhaps understandable.
David Gardner believes online jewelry company Blue Nile has a sparkly future ahead of it, despite this hiccup. He named the company as his inaugural recommendation in the new Motley Fool Rule Breakers high-growth newsletter. Curious? Take a free trial today.
Fool contributor Dave Marino-Nachison owns shares of Oracle.
