December 19, 2006
Selling Yourself Short . . .
Posted by Fred Tung

. . . ain't the hazard it used to be, at least not if you want to run Coca-Cola.  Coke just appointed Muhtar Kent as its president and COO, making him the No. 2 behind CEO Neville Isdell, as well as Isdell's likely successor.  Almost ten years have passed since Kent was fired from a senior position with Coca-Cola Amatil--a regional bottler based in Sydney--for shorting 100,000 of his own company's shares just hours before the company issued a serious profit warning that caused a drop of $2.5BB in the company's market cap, almost a 30% loss.  Kent had been managing director of the bottler's European division.  He apparently made about $324,000 from the sale.  After an investigation by the Austrialian Securities Commission, Kent coughed up the profits and another $30,000 to cover the costs of the investigation. 

This past October, Kent denied prior knowledge of the impending profit warning, calling it all a "bad coincidence."  The current official story from Coke is of the "dog ate my homework" variety:

Mr Kent was advised by his financial adviser to diversify his financial portfolio, which at the time consisted solely of KO stock and CCA stock options. . . . He accepted the proposal and left it to the financial adviser to execute. In doing so, he did not fully understand that it would involve a short sale or the elements of a short sale. As a result, he also did not know the specific timing of the transaction.

So he didn't know about the impending profit warning.   And he didn't know about the impending short.  Hmmm . . .  Sorta sounds like Martha Stewart's oral stop loss order.  I'm also not sure how short-selling diversifies his portfolio.  And why was he shorting his own company anyway??  When Kent was made president of Coca-Cola international in January, less than a year after rejoining Coca-Cola, it made Colin Barr's The Five Dumbest Things on Wall Street This Week at  Or you can watch the video.

In any event, CEO Isdell (declining to be interviewed) recently issued a written statement:  "Without doubt, Muhtar is a man of the highest integrity and deepest skills."

When Coke sneezes, Emory catches a cold.  So we tend to follow our local benefactor quite closely.

Business Ethics, Businesses of Note, Management, Securities, White Collar Crime | Bookmark

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