Post by jannikki on Nov 26, 2006 14:53:00 GMT -4
Gretchen Morgenson: Before Sunrise stock fell, insiders bailed out
By Gretchen Morgenson / The New York TimesPublished: November 26, 2006
NEW YORK: Shareholders of Sunrise Senior Living, a provider of residential communities and services for the elderly, have seen their holdings decline 17 percent since last spring as problematic bookkeeping kept the company from filing three quarterly financial statements on time, forced it to restate earnings for 2003 through 2005, drew inquiries from the U.S. Securities and Exchange Commission about its accounting and led it to warn that its internal controls were probably inadequate.
All of that resulted in a $342 million hit to the market value of the company, which is based in McLean, Virginia. But a raft of insiders escaped some of that damage. Three of the company's directors and its two founders sold $32 million worth of Sunrise stock in the six months leading up to the May 9 announcement that it was changing its accounting practices and delaying its financial filing.
Reviewing stock sales over the six months before the announcement is relevant because, during a conference call with investors in May, Sunrise officials said that "late in 2005" they had begun contemplating the accounting shift that later clobbered Sunrise shares.
While no one has been charged with trading on nonpublic information, the timing is interesting.
Selling during the period were Paul Klaassen, the founder and chief executive; his wife, Theresa Klaassen, who is chief cultural officer for Sunrise; Ronald Aprahamian, a consultant and investor who is chairman of Sunrise's audit committee; Thomas Donohue, a Sunrise director who is chairman of the U.S. Chamber of Commerce; and J. Douglas Holladay, founder of a private equity firm and also a director.
Donohue's sales are of particular interest, given his day job. He has been a force behind the U.S. Chamber of Commerce's efforts to defang Sarbanes-Oxley, the Enron-era law designed to clean up corporate accounting and governance. The chamber also has the commission's enforcement division in its sights: one chamber priority is to "curtail the SEC's overly broad authority to launch investigations," according to its Web site.
Insider sales at Sunrise, in the face of accounting troubles that could clip $100 million from the company's net income for 1999 through 2005 - equal to 29 percent of its earnings - have spurred one shareholder to demand the appointment of an independent monitor to investigate the accounting. The shareholder has also asked that a monitor scrutinize the timing of large option grants to the company's top executives between June 1996 and October 2005. Five of those grants were dispensed at or near periodic lows in Sunrise's stock.
SEIU Master Trust, a pension fund that benefits members of the Service Employees International Union, is asking for the monitor. It owns 8,000 Sunrise shares and works with other pension funds that own 700,000 Sunrise shares, such as the New York State Common Retirement Fund and the Ohio Public Employees Retirement System.
"Our letter boils down to one issue - the apparent failure of the board to meet its duty to shareholders," said Stephen Abrecht, SEIU's executive director of benefit funds. "Sunrise's questionable accounting practices, the troubling insider sales, the improbably timed option grants and numerous director conflicts of interest all point to deficient leadership at the company. It's time for shareholders to hold the directors accountable and insist on good corporate governance."
The biggest sellers of Sunrise stock were the Klaassens, who generated $21.4 million in sales of 600,000 shares between December 2005 and April 4, 2006. The sales began last Dec. 19, around the time the company first contemplated the accounting review that resulted in the restatements. They were part of a series of planned sales put in place in December by the executives.
An especially timely stock sale by Paul and Theresa Klaassen came a week before the company announced that it was delaying its financial filings. On May 1 and 2, they sold 100,000 shares at an average price of $36.91. The day of the announcement, the price fell to $32.35. On Friday, the stock closed at $32.50.
Reached last Wednesday at a vacation home in Florida, Theresa Klaassen, who is a Sunrise director, declined to comment. The Klaassens continue to hold a large stake in Sunrise - 5.2 million shares, or approximately 10 percent of the stock outstanding. Although they entered into a derivatives contract relating to a forward sale of 750,000 shares last year, the sales of 600,000 shares were their first outright disposal of Sunrise stock since the company went public in 1996.
The SEIU letter asked the monitor to recommend remedies for "disgorgement of ill-gotten gains, return of any bonuses and performance-based compensation, and the cancellation of stock options."
Donohue, the U.S. Chamber of Commerce chairman, has been a Sunrise director since 1995 and heads its compensation committee. He is also a member of its audit committee. In November, 2005, he sold shares worth $3.4 million, according to regulatory filings. Paul Klaassen is on both the chamber's board and that of its research arm, the National Chamber Foundation.
A message left last Wednesday for Donohue at the organization was not returned. A phone number it gave for urgent media requests was not in service.
Then there is Holladay, the director who heads Sunrise's corporate governance committee. He sold about $670,000 worth of company stock between November and March. He did not return a phone call on Friday seeking comment.
Meghan Lublin, a spokeswoman for Sunrise, said: "Any board member or Sunrise employee who conducted stock transactions earlier this year could not have had prior knowledge of the eventual accounting review and delay in our first-quarter earnings." The company has reviewed its option practices and believes that they were proper, she added. "Nevertheless the board will give the SEIU's letter careful consideration and respond in an appropriate and timely manner," she said.
Stay tuned to see if Sunrise's board selects a monitor. Meanwhile, isn't it good to see shareholders acting like owners?
www.iht.com/articles/2006/11/26/business/gretchen.php
By Gretchen Morgenson / The New York TimesPublished: November 26, 2006
NEW YORK: Shareholders of Sunrise Senior Living, a provider of residential communities and services for the elderly, have seen their holdings decline 17 percent since last spring as problematic bookkeeping kept the company from filing three quarterly financial statements on time, forced it to restate earnings for 2003 through 2005, drew inquiries from the U.S. Securities and Exchange Commission about its accounting and led it to warn that its internal controls were probably inadequate.
All of that resulted in a $342 million hit to the market value of the company, which is based in McLean, Virginia. But a raft of insiders escaped some of that damage. Three of the company's directors and its two founders sold $32 million worth of Sunrise stock in the six months leading up to the May 9 announcement that it was changing its accounting practices and delaying its financial filing.
Reviewing stock sales over the six months before the announcement is relevant because, during a conference call with investors in May, Sunrise officials said that "late in 2005" they had begun contemplating the accounting shift that later clobbered Sunrise shares.
While no one has been charged with trading on nonpublic information, the timing is interesting.
Selling during the period were Paul Klaassen, the founder and chief executive; his wife, Theresa Klaassen, who is chief cultural officer for Sunrise; Ronald Aprahamian, a consultant and investor who is chairman of Sunrise's audit committee; Thomas Donohue, a Sunrise director who is chairman of the U.S. Chamber of Commerce; and J. Douglas Holladay, founder of a private equity firm and also a director.
Donohue's sales are of particular interest, given his day job. He has been a force behind the U.S. Chamber of Commerce's efforts to defang Sarbanes-Oxley, the Enron-era law designed to clean up corporate accounting and governance. The chamber also has the commission's enforcement division in its sights: one chamber priority is to "curtail the SEC's overly broad authority to launch investigations," according to its Web site.
Insider sales at Sunrise, in the face of accounting troubles that could clip $100 million from the company's net income for 1999 through 2005 - equal to 29 percent of its earnings - have spurred one shareholder to demand the appointment of an independent monitor to investigate the accounting. The shareholder has also asked that a monitor scrutinize the timing of large option grants to the company's top executives between June 1996 and October 2005. Five of those grants were dispensed at or near periodic lows in Sunrise's stock.
SEIU Master Trust, a pension fund that benefits members of the Service Employees International Union, is asking for the monitor. It owns 8,000 Sunrise shares and works with other pension funds that own 700,000 Sunrise shares, such as the New York State Common Retirement Fund and the Ohio Public Employees Retirement System.
"Our letter boils down to one issue - the apparent failure of the board to meet its duty to shareholders," said Stephen Abrecht, SEIU's executive director of benefit funds. "Sunrise's questionable accounting practices, the troubling insider sales, the improbably timed option grants and numerous director conflicts of interest all point to deficient leadership at the company. It's time for shareholders to hold the directors accountable and insist on good corporate governance."
The biggest sellers of Sunrise stock were the Klaassens, who generated $21.4 million in sales of 600,000 shares between December 2005 and April 4, 2006. The sales began last Dec. 19, around the time the company first contemplated the accounting review that resulted in the restatements. They were part of a series of planned sales put in place in December by the executives.
An especially timely stock sale by Paul and Theresa Klaassen came a week before the company announced that it was delaying its financial filings. On May 1 and 2, they sold 100,000 shares at an average price of $36.91. The day of the announcement, the price fell to $32.35. On Friday, the stock closed at $32.50.
Reached last Wednesday at a vacation home in Florida, Theresa Klaassen, who is a Sunrise director, declined to comment. The Klaassens continue to hold a large stake in Sunrise - 5.2 million shares, or approximately 10 percent of the stock outstanding. Although they entered into a derivatives contract relating to a forward sale of 750,000 shares last year, the sales of 600,000 shares were their first outright disposal of Sunrise stock since the company went public in 1996.
The SEIU letter asked the monitor to recommend remedies for "disgorgement of ill-gotten gains, return of any bonuses and performance-based compensation, and the cancellation of stock options."
Donohue, the U.S. Chamber of Commerce chairman, has been a Sunrise director since 1995 and heads its compensation committee. He is also a member of its audit committee. In November, 2005, he sold shares worth $3.4 million, according to regulatory filings. Paul Klaassen is on both the chamber's board and that of its research arm, the National Chamber Foundation.
A message left last Wednesday for Donohue at the organization was not returned. A phone number it gave for urgent media requests was not in service.
Then there is Holladay, the director who heads Sunrise's corporate governance committee. He sold about $670,000 worth of company stock between November and March. He did not return a phone call on Friday seeking comment.
Meghan Lublin, a spokeswoman for Sunrise, said: "Any board member or Sunrise employee who conducted stock transactions earlier this year could not have had prior knowledge of the eventual accounting review and delay in our first-quarter earnings." The company has reviewed its option practices and believes that they were proper, she added. "Nevertheless the board will give the SEIU's letter careful consideration and respond in an appropriate and timely manner," she said.
Stay tuned to see if Sunrise's board selects a monitor. Meanwhile, isn't it good to see shareholders acting like owners?
www.iht.com/articles/2006/11/26/business/gretchen.php