Insider selling soars in L.A.'s hottest sectors.

Others may be suffering, but insiders at L.A.'s largest companies are still living in Fat City.

Despite declines in the broader markets and the values of local companies during the past year, local executives have continued to sell, and to spend the proceeds freely.

Insider selling nationwide fell by 27 percent during the first five months of 2002, but insiders at L.A.'s 50 largest public companies ramped up their sales by nearly 5 percent compared with the like period a year ago, according to data compiled for the Business Journal by Thomson Financial. The companies were ranked by market capitalization.

From January to May of this year, locally based insider selling totaled $512.8 million, compared with $490.3 million a year earlier. Nationally, insiders sold $14 billion in stock this year, down from $19.3 billion.

The selling has been strongest at L.A.'s best performing companies, including those in the software game industry and in homebuilding.

These sectors have been bright spots nationally in an otherwise gloomy bear market, which has seen price year-to-date declines on the order of 19 percent for the Standard & Poor's 500 and nearly 30 percent for the Nasdaq composite index. The LABJ 200 Index of local companies, by comparison, is down 15 percent.

"Stocks are doing well in the L.A. area, so it's understandable that you would see some of the executives taking profits," said Lon Gerber, director of insider research at Thomson Financial.

And so they are.

New jet for Kotick

Executives peddling video games, new homes, food, and automotive accessories have seen their paper worth skyrocket.

By far the most active insider sellers have been at Activision Inc., the Santa Monica video game maker that has seen its market value surge to more than $1.7 billion last week, from around $370 million in January 2001.

Led by Chief Executive Robert Kotick, insiders at Activision have cashed in $58.2 million this year. Activision executives led the way in 2001 as well, cashing in $76.5 million in the first five months alone.

Insiders sell for many reasons, often for estate planning purposes or to diversify their portfolios. Kotick, though, has splurged at least a little.

In April, he purchased a used 1980 Gulfstream Gill jet from Las Vegas executive Steven Wynn, who traded up to a more expensive aircraft, according to data from Jetnet, a multiple listing service for aircraft. An Activision spokesperson said Kotick was unavailable for comment.

Kotick, who sold $11.9 million in stock this year, did well to purchase the jet in slow times. Aircraft brokers say he likely paid around $8 million, but the same plane would have gone for about $10 million at market peak.

Other companies with large amounts of insider selling this year include Westwood One Inc., where insiders have unloaded $52 million in stock this year, Overture Services Inc. ($51 million), Cheesecake Factory ($47.3 million), Superior Industries International ($50 million), and Univision Communications Inc. ($47 million).

Like Kotick, Texas transplant David I. Saperstein, the largest individual shareholder in radio programmer Westwood One, has been indulging in excesses.

Saperstein, who already had a plane, spent the last year or so building a 45,000-square-foot mansion in Holmby Hills. He has sold $19.6 million in stock this year. Earlier this year, the Business Journal estimated Saperstein's personal net worth at $450 million.

Saperstein didn't return calls placed to him through Westwood One.

Homebuilder sales

The homebuilding sector also has had an active set of sellers. In the first five months of the year insiders at KB Home sold $21 million in stock (down 43 percent) and Ryland Group Inc. sold a total $16.0 million (up 186 percent).

Debra Hotaling, a spokeswoman for KB Home, defended the sales noting that most of the company's executives continue to hold a "substantial" portion of their stock. Ryland declined to comment.

Analysts sometimes see large amounts of selling as a negative barometer. Some of the most prolific insider selling last year came at companies like Homestore.com Inc. and Global Crossing Ltd., whose fortunes have sagged to the point that they would no longer be among the area's top 50 companies. (Global Crossing, which once had corporate offices in Beverly Hills, is now run from New Jersey.)

However, many of the companies where selling has been high in both years -- such as Ryland and Activision -- continue to outperform the broader market.

"Nationally, the market is down so if you have options that are out of the money you're not going to exercise them," said Michael Pachter, director of research at Wedbush Morgan Securities in Los Angeles. 'This tells me L.A. stocks are doing better."

To some analysts, an 80 percent increase in open-market purchases among L.A.'s insiders provides some interesting signals.

Between January and May, local insiders bought $2.7 million in stock on the open market between January and May, up from $1.5 million in the like period a year ago.

"An increase in buying is a signal that the shares may be undervalued in the market;" said David Coleman, editor of Vickers Weekly Insider Report.

Open-market purchases by insiders are rarer than sales, mainly because the granting of stock option incentives gives executives more opportunities to sell than to buy.

More than half the recent open market purchases locally have taken place at 21st Century Insurance Group. Through May of this year, insiders have bought $1.6 million in stock but have sold only about $600,000 worth.

Officials at 21st Century did not return calls seeking comment.

Outsiders attribute the 21st Century activity to long-term prospects for the insurance industry, which post-Sept. 11 is having a much easier time raising premiums. Profits are therefore expected to increase in the long term.

Some investors have made a strategy of tracking insider trades and factoring them into their own trading. It's fair to say insiders know more about a company's prospects than anyone, said Steven Cochrane, senior economist at economy.com, a research house.

To use the housing market as a local example of what may come, Cochrane suggested the possibility of higher interest rates. "The recession is coming to an end, interest rates may rise, and the housing industry may slow;" he said. "So right now it's time to take some profits."

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Active Sellers

Large Companies with the most insider sales (millions of dollars).

Jan.-May 2001                  Amount  Jan.-May 2002            Amount

Activision                      $76.5  Activision                $58.2
Westwood One                     66.6  Westwood One               52.0
Amgen                            46.1  Overture Services          51.0
KB Home                          37.1  Superior Industries        50.0
THQ                              16.2  Cheesecake Factory         47.3
Univision Communications         16.0  Unvision Communications    47.0
International Rectifier          15.7  KB Home                    21.0
Countrywide Credit Industries    10.8  Amgen                      19.2
Overture Services                10.5  Ryland Group               16.0
Superior Industries               9.6  City National Corp.        14.3

Source: Thomson Financial