The receipt of a comment letter from the Securities and Exchange Commission induces many top executives to start selling shares in their companies before the letters are released to the public, according to a new study.
The study, which was presented at a recent annual meeting of the American Accounting Association, raises troubling questions. Researchers found that top executives frequently take advantage of a period before the letters are made public (no sooner than 20 business days from resolution) to unload large amounts of their company shares. The study noted that the stock market reacts slowly to SEC disclosures of comment letters, in part because information about them can be difficult for the average investor to discover.
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