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StorageNetworks' Insider Selloff

Executives at ailing SSP continue heavy selling of shares

Speaking at a Salomon Smith Barney investor conference on Sept. 4, StorageNetworks Inc. (Nasdaq: STOR) CEO Peter Bell did what any good CEO would do: He touted his company. StorageNetworks is on a clear and steady path to achieve our financial goals and reach our gross margin profitability metrics in line with our guidance,” he told the crowd. Three days later, he gave a similar presentation at an SG Cowen Securities conference.

Despite his proclaimed faith in the company, on the day of the Smith Barney speech, Bell sold 40,668 shares of the storage service provider (SSP) at $5.00 a share. He sold more stock on each of the following days right up through the day he spoke at the Cowen conference. During the four-day selling spree, he pocketed $714,918 as he unloaded 166,668 shares at an average price of $4.29 apiece.

In fairness to Bell, he was holding to an established a pattern of selling similar amounts of the stock on a monthly basis through a blind trust that defined in advance when stock sales will be made. The common rationale for such sales is that executives who benefit from stock grants and options need to diversify their portfolios. The trust is set up so specific amounts of stock are sold automatically on dates not known by the sellers. “That insulates Peter from a claim of insider trading,” says Dean Breda, StorageNetworks’ in-house attorney. So the selling should not have been much of a surprise.

Still, during Bell's September sales, the stock was flirting with its 52-week low of $3.65 a share. To those not aware of the blind trust, the appearance is that a key executive had no faith the stock would return to its 52-week high of $58.75, much less its $154 all-time high of July 2000.

This unfortunate perception is exacerbated by StorageNetworks' ongoing financial woes. Indeed, the SSP has been incinerating cash every quarter since its inception in 1998.

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