NEW YORK - Corporate executives, led by Microsoft Corp. officers, boosted their stock sales in the first half of the year by 68 percent from the comparable period last year, to a record $36.5 billion.
Microsoft co-founder Paul Allen led the sellers by disposing of $4 billion in shares, as the software maker's shares fell 30 percent this year. Allen, Microsoft Chairman Bill Gates, and other executives accounted for 12 percent of all insider sales, according to the Washington Service research firm.
Insiders - executives, directors and big individual investors - cut their purchases by 36 percent to $1.34 billion from January through June. The pace of selling has increased to a two-year high, and insiders continued to sell even as the Nasdaq composite index was falling in recent months.
"It's definitely a red flag," said David Coleman, editor of Vickers Weekly Insider Report, which tracks buying and selling of executives. "The market is vulnerable."
Other big sellers included officers of computer makers Dell Computer Corp. and Gateway Inc.; Cisco Systems Inc., the No. 1 maker of computer networking equipment; and Amazon.com Inc., the top Internet retailer.
"These guys are pretty smart to be selling," said Carl Domino, president of Northern Trust Value Investors, a West Palm Beach, Fla., company that manages $2 billion.
"Guys who may not have had that much money in the past see their stocks run up and are cashing in."
The Nasdaq index has fallen to around 4,000 from 5,132.52 on March 10, yet selling continued even as stocks declined. That's a warning signal for Internet-related firms whose values seem out of line to their sales and profits, analysts said.
For example, Amazon.com Chief Executive Officer Jeffrey Bezos sold 368,650 shares at $54.24, or $20 million, or less than half the retailer's peak of $113 in December. Its shares have since fallen to about $35 on concern that the company could run out of cash.
"Insiders are still willing to let shares go at lower prices" in the Internet sector, said Bob Gabele, director of research for First Call/Thomson Financial. "The persistency of selling is a concern."
Other Web-related companies with big sales include merchants eBay Inc. and Priceline.com Inc., software makers Ariba Inc. and Commerce One Inc. and online investor Internet Capital Group Inc., according to Washington Service.
Microsoft officers, who sold $4.4 billion in shares in the past six months, have led the selling for the past four years. Other big sellers include Dell founder Michael Dell, who sold $755.4 million; Gateway founder Ted Waitt, with $387.7 million in sales; and Cisco CEO John Chambers, who sold $151.5 million.
Microsoft and Dell said their officers regularly sell small amounts of stock to diversify their investments. Cisco said the sales were related to option grants as well. Amazon.com said Bezos sells shares from time to time to finance investments and other commitments. Gateway said Waitt sold shares to diversify his investments and to make charitable donations.
During the past eight weeks, there were five sellers for every three buyers, according to Vickers. That's the highest rate of selling since July 1998 and a reversal from early January, when buyers exceeded sellers.
Typically, twice as many sales as purchases are reported by officers and directors, who are required to disclose their moves to the Securities and Exchange Commission.
The trend toward increased sales is more worrisome than the actual level of selling, analysts said. Insiders tend to purchase when they think their stocks are good values, analysts said.
Today, though, stocks in the Standard & Poor's 500 index trade at 30 times the past year's earnings, about twice the level of a decade ago.
The Nasdaq index, with a greater weighting of computer-related and Internet stocks, trades at 147 times earnings for the past year.
"By historical standards, the market is 30 percent to 40 percent overvalued," said money manager Domino.