Insider Covers Tracks

Call it a Cash-22,” if you will: Executives at networking firms that struck gold with the initial public offering boom of 1999 and 2000 now want to sell some of their restricted shares. But by law they must report plans to sell this stock, which they acquired as founders shares or through stock options, to the Securities and Exchange Commission, which makes this info publicly available. The catch: Public investors get skittish when they hear of pending insider sales.

One solution is to form corporations or limited partnerships that make the sellers less transparent. And that’s what William Miller, a founder and chief technology officer of StorageNetworks Inc.(Nasdaq: STOR), a storage services provider, appears to have done.

Miller put 1 million of his StorageNetworks shares in a corporation called BMAAM, of which he is the sole owner. He also put 2.4 million shares in a limited partnership called MAWAM, of which he is the general partner and his children are limited partners.

Since May, Miller has filed plans to sell 550,000 shares from BMAAM for about $7.2 million. This includes a Nov. 14 filing to sell 250,000 shares for about $1.6 million. And on Oct. 23, he filed plans to sell 200,000 shares for about $1 million from MAWAM.

An irate StorageNetworks spokeswoman declined to comment on either of the entities -- not even on what the acronyms stand for.[It's a game the whole family can play... BMAAM: Bill Miller's Artful Accounting Manipulation? MAWAM: Meaningless Acronym Worth Alotta Money?]

Miller and StorageNetworks general counsel Dean Breda were not available to comment.

Corporate executives are generally edgy about publicity of insider sales. “A constant gripe you hear from CEOs is ‘I’ve got to diversify,' ” says Don Reynolds, a securities lawyer with Wyrick Robbins Yates & Ponton, who is not affiliated with StorageNetworks. “Then when they sell, the market thinks something’s wrong, perhaps not considering they still hold millions of shares.”

Reynolds says executives more commonly establish trusts rather than corporations or limited partnerships to sell personal stock. But he notes that a limited partnership, aside from making the beneficiary less transparent, can have tax benefits.

Even if Miller winds up selling all of his BMAAM and MAWAM shares, his holdings should still be substantial. According to the company’s proxy statement in April, Miller held a total of 5.5 million shares under his own name and these other entities. Between then and the end of October (the date of his most recently reported transaction) Miller sold 800,000 shares, leaving him with 4.7 million.Meanwhile, institutional investors are buying. Massachusetts Financial Services Co. reported Nov. 13 that it now holds 10.9 million shares of StorageNetworks, or 11.2 percent of the company. Massachusetts Financial was unlisted in StorageNetworks’ April proxy, a document that requires the names of all parties that beneficially own at least 5 percent of the stock.

StorageNetworks shares closed Tuesday up 64 cents (8.95 percent) to 7.79.

— Tom Davey, special to Byte and Switch, http://www.byteandswitch.com