One of the top experts on insider trading in education is puzzled by a number of stock sales by First Horizon Bank employees over the past year.

He is Nejat Seyhun, a finance professor at the University of Michigan. He recently helped launch a subscription website to help buyers look over insider transaction data collected by the U.S. Securities and Exchange Commission.

As of the end of March, First Horizon FHN, +0.52%, a bank in Tennessee, had $79 billion in assets. The bank has been in the news for more than just the banking crisis that started when Silicon Valley Bank and Signature Bank failed and caused smaller area banks to be closely watched. First Horizon has also been in the news because a plan to merge with Canada’s TD Bank TD, +1.60% for $25 per share, which was revealed in February 2022, fell through in early May.

At the end of February 2023, each share of First Horizon stock was worth $24.77. On June 7, the price per share was less than $12.

Officers and directors of First Horizon sold 1.1 million shares of the company’s stock at an average price of $23.35 between March 2022 (when the merger was announced) and February of this year. This is strange to Seyhun. He wrote in an email that “there was no reason for any insider to sell shares on the open market during this 12-month window, especially below the merger price of $25.”

Moving Markets

During this 12-month time, Daryl Byrd, who is the executive chairman of First Horizon’s board of directors, sold the most shares he owned than anyone else. In June 2022, he sold over 200,000 shares for $22.59, which was a lot less than the price offered for the merger. Seyhun noticed this because Byrd could have gotten 10% more if he had waited until the deal was finalised.

Beth Ardoin, First Horizon’s senior executive vice president and top communications officer, said in an email that Byrd sold his shares because the options he had been given were about to expire and he would have lost them if he hadn’t used them.

Seyhun doesn’t agree with this argument because having to exercise doesn’t make it necessary to sell shares at the same time. When asked about this, Ardoin said, “You are questioning actions taken last June [2022], when TD publicly, clearly, and consistently said they were confident in their ability to complete the transaction” to buy First Horizon.

If the merger with TD Bank was still going to happen, Byrd could have gotten a better price if he had waited. When asked if the First Horizon deals raise any red flags, a spokesperson for the Securities and Exchange Commission did not answer.

In an interview, Seyhun said that he is asking these questions because of the clues he has seen, not because he knows for sure that any of these deals were wrong. He says that the drop in First Horizon’s stock price after its failed merger with TD Bank made him pay more attention to the company.

Seyhun also says that he didn’t own any First Horizon stock during the 12 months when the secret sales happened. He says that after the failed merger between the bank and TD Bank, he bought a small amount of First Horizon stock.

Trades that were planned ahead of time
Under an SEC rule called 10b5-1, it’s a good question to ask if any of the 1.1 million shares that were sold during this 12-month period were planned ahead of time. This rule lets insiders sell a set number of shares at set times. Insiders use 10b5-1 plans in the hopes that doing so will keep regulators from looking too closely at their sales and keep them from being accused of using inside information to make their sales.

Even though one of the secret sales during this time was a 10b5-1 sale, it raises questions. On February 24, Bryan Jordan, who is the CEO of First Horizon, sold 93,157 shares. This was 6% of the First Horizon shares he owned at the time. This sale was made possible by a 10b5-1 plan that was put in place last September. Seyhun said that the plan was made while the merger with TD Bank was still going smoothly. Seyhun says that this sale should be looked at with just as much care as the other sales that were not planned ahead of time.

Ardoin said in an email that Jordan set up his 10b5-1 plan in September 2022 as a “safety measure” in case the merger with TD Bank was delayed, since he owned options that would have been useless after March 2023.

Seyhun doesn’t understand why Jordan was worried that the union might not happen on time. “A possible delay puts shareholders at risk of a big drop in the stock price and also makes it more likely that the deal will be cancelled,” Seyhun wrote in an email.

Most recently, a class-action lawsuit was filed claiming that people involved with the proposed merger between First Horizon and TD Bank “made false statements and/or hid that TD Bank failed to disclose material information to the market that it had deficient internal controls that posed a significant risk to the closing of the First Horizon transaction.” Seyhun has nothing to do with this.

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