But a member of the Securities and Exchange Commission is calling out buybacks as de facto bonuses for corporate executives and says the agency must do more to protect ordinary investors.
SEC commissioner Robert Jackson issued a letter on Wednesday that said the agency has found that insiders sell more stock on days when buybacks are announced than on other trading days. Jackson, a Democrat and NYU Law professor, looked into trends around stock buybacks at the request of Senator Chris Van Hollen, a Democrat from Maryland.
Jackson and Van Hollen were scheduled to discuss the findings with reporters Wednesday, but Jackson was advised by the SEC's general counsel to not participate in a conference call. Van Hollen led the discussion.
But Jackson didn't mince words in his letter.
"When executives unload significant amounts of stock upon announcing a buyback, they often benefit from short-term price pops at the expense of long-term investors," he said in the letter. Overall "insider selling on buybacks is associated with worse long-term performance."
Jackson spoke with CNN on Wednesday after the scheduled call had ended and put a finer point on the pitfalls of the buyback practices.
"CEOs don't sell valuable things cheaply," he quipped. "Executives are using buybacks as a way to cash out."
He said it doesn't make sense to see companies buy back stock at high prices at the same time that insiders are selling the stock.
Stock buybacks are increasingly coming under fire in Washington.
Jackson, who was nominated for the SEC commissioner post by President Donald Trump in September 2017 and was confirmed by the Senate later that year, has been a vocal critic of buybacks for some time.
"On too many occasions, companies doing buybacks have failed to make the long-term investments in innovation or their workforce that our economy so badly needs," Jackson said in a speech last June.
Van Hollen, along with fellow Democratic senators Tammy Baldwin and Amy Klobuchar, have been critical of buybacks, especially ones made by companies like GM (GM) that are laying off workers despite having cash to repurchase shares.
Two other Democrats, Chuck Schumer and Bernie Sanders, have proposed a limit on stock buybacks. And Republican senator Marco Rubio wants to put an end to tax advantages for buybacks, saying they should be taxed at the same rate as dividends.
Van Hollen, who asked for the SEC review in December, said his biggest problem with the explosion in buyback activity is that companies could and should be doing more productive things with their cash.
"What I am suggesting is that the rules need to be rewritten. This conduct is clearly wrong," he said.
He said the Senate would introduce legislation in the next few weeks to address the practice.
Many other Republicans, as well as corporate executives, think the buyback backlash is unfair though.
Public companies should be allowed to use excess capital as they see fit, they argue. What's more, many companies that buy back a lot of stock still spend heavily on research and development and wage increases for workers.
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