When analyzing insider trading data, once in a while you will come across duplicate transactions. Basically, for regulatory reasons (usually based on the SEC Rule 16a-1) insiders might be required to each file the same transaction on a separate Form 4. Keep in mind, that the SEC’s goal is to have complete data (even if it’s duplicate) that supports its regulatory goals and they don’t care much if this might confuse investors.
Form4Oracle’s algorithm searches for duplicate transactions (in real-time as the filings are processed) and highlights them in bold red. For a good reason. Whenever you see transactions marked as “duplicate” you should most likely treat them as a single transaction.
Why “most likely”? Because, it is impossible to say for sure if the transactions are, in fact, duplicate or just look this way. While the algorithm doesn’t “know” for sure, it “suspects” with a high degree of confidence.
This is pretty much all you need to know about it. However, if you are interested in diving deeper, keep reading.
Here is an case of Warburg Pincus Private Equity (WP) taking a position in Builder FirstSource (BLDR) in March 2008. Note, for instance, three separate purchases for $167,870, $63,750 and $3,375 each reported four times. From the investment point of view, WP’s transaction is the only one we should care about. However, for regulatory reasons, each of the three WP partners (also directors at BLDR) filed a separate Form4 filing reporting this transaction.
Looking into one of these filings, for example, by David Barr you would notice a footnote: “See Exhibit 99.1”, which refers to a file submitted with the Form 4. The last paragraph is this file basically explains the issue:
“Mr. Barr, who became a director of Builders FirstSource, Inc. on February 27, 2006, is a partner of WP, and a member and Managing Director of WP LLC. As such, Mr. Barr may be deemed to have an indirect pecuniary interest (within the meaning of 16a-1 of the Act) in an indeterminate portion of the securities reported as beneficially owned by WP IX. Mr. Barr disclaims beneficial ownership of such securities except to the extent of any indirect pecuniary interest therein. Mr. Barr does not directly own any shares of Common Stock.”
Basically, WP is doing the buying, but since Mr. Barr “may be deemed to have an indirect pecuniary interest”, he is required to file as well.
Needless to say, you don’t have to do spend your time reading these footnotes and clicking through various forms and files, as Form4Oracle does this analysis automatically in real-time marking transactions as “duplicate” as soon as a new Form 4 is processed.
A curious side note. Notice, that while WP was heavily buying into BLDR in March 2008, the CEO dumped nearly the same amount just two months later. Result: WP lost over two thirds of their investment, while the CEO got a very good price for his shares. Lesson: follow C-Level insiders, not 10% owners. But this is a topic for a different post…