Exclusive: U.S. executives pledge stock for loans, raise margin call concern

Tue Nov 17, 2015 10:59am EST
 
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By Tim McLaughlin

BOSTON (Reuters) - U.S. corporate executives and directors have pledged at least $15 billion of their own company stock holdings to secure personal loans, in spite of recent examples of these arrangements creating bigger losses for other investors during selloffs.

Most U.S. companies say they limit or prohibit stock pledging because they can increase downward pressure on a company's stock price if an executive's pledged shares are sold under duress, such as a margin call. Still, some boards make exceptions for their stars, corporate disclosures show. And they rarely disclose what these insiders are doing with their borrowed money.

Earlier this month, shares of Valeant Pharmaceuticals International (VRX.TO: Quote) fell 14 percent during a single trading session after 1.3 million shares of the company's stock was dumped on the market in a margin call. Valeant CEO Michael Pearson had pledged the stock as collateral to secure loans from Goldman Sachs Group Inc totaling about $100 million.

The money partly financed contributions to Duke University and to help fund a community swimming pool, Pearson disclosed. His latest disclosed total pay was $10.3 million, according to Valeant's proxy statement.

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The ticker information for Valeant Pharmaceuticals International Inc. is displayed on a screen above the post where it's traded on the floor of the New York Stock Exchange November 4, 2015. REUTERS/Brendan McDermid