Insiders ditch, companies falter

The first story seemed odd enough:

Days before his firm filed for bankruptcy on Monday, American Home Mortgage Investment (AHM:OTC) Chairman and Chief Executive Michael Strauss sold US$3.5 million of stock at US$1.17 a share. The reason given? To satisfy a margin call at his brokerage firm. Now that the firm is in Chapter 11 protection the shares have dropped to $0.27.

But then came this:

Apartment and condominium builder Tarragon Corp. (TARR:NASDAQ) is letting everyone know that they might not be able to stay in business. Something to do with the credit market, lack of buyers, global warming, etc. In related news, the CEO’s wife, Lucy Friedman, sold about US$500,000 of stock, at an average price of $3.19 a share on Tuesday and Wednesday of this week.

On Thursday, Tarragon’s share price closed at $0.94 (down 67% on the day). Mrs. Friedman might be kicking herself for not having sold at US$13 in February – subject to blackout periods – when the first subprime problems began to surface (see post “Too much credit where it’s not due?“, Feb 12-07).

It may well be a coincidence, and that neither had any unique perspective on what was going on at these two firms in the hours leading up to the trading nadir. But you have to wonder: have they ever heard of a woman by the name of Martha Stewart?

MRM