You Bought. They Sold. All over corporate America, top execs were cashing in stock even as their companies were tanking. Who was left holding the bag? You.
By Mark Gimein Reporter Associates Eric Dash, Lisa Munoz, Jessica Sung

(FORTUNE Magazine) – Over the past months, the public has been treated to an ever-lengthening parade of corporate villains, each seemingly more rapacious than the last. First there were the Enronites, led by the now disgraced Kenneth Lay, Fifth-Amendmenting their way through the halls of Congress. Then there was Global Crossing's Gary Winnick, with his Drexel Burnham resume and hundreds of miles of useless undersea cables. And of course there was Tyco CEO Dennis Kozlowski, who, despite having made hundreds of millions of dollars from Tyco stock options, stands accused by the government of shipping empty boxes out of New York to avoid the sales tax--the sales tax!--on his million-dollar paintings.

These people and a handful of others are the poster children for the "infectious greed" that Fed chairman Alan Greenspan described recently to Congress. But by now, with the feverish flush of the new economy recognizable as a symptom not of a passion but of an illness, it has also become clear that the mores and practices that characterize this greed suffused the business world far beyond Enron and Tyco, Adelphia and WorldCom.

With assistance from Thomson Financial and the University of Chicago's Center for Research in Securities Pricing, FORTUNE set out to answer an obvious question: As Lay, Winnick, Kozlowski, et al. were dumping their shares and getting rich, what were the rest of America's top executives doing? Gary Winnick, we all now know, sold some $735 million in stock as his company was hurtling toward bankruptcy. But was this really the ultimate in millennial avarice?

In a word: no.

The not-so-secret dirty secret of the crash is that even as investors were losing 70%, 90%, even in some cases all of their holdings, top officials of many of the companies that have crashed the hardest were getting immensely, extraordinarily, obscenely wealthy. They got rich because they were able to take advantage of the bubble to cash in hundreds of millions of dollars' worth of stock--stock that was usually handed to them via risk-free options--at vastly inflated prices. When the bubble burst, their shareholders were left holding the bag. But, hey, they had theirs.

How much did they take in? We'll get to that in a second, but first we need to explain the criteria for the list that accompanies this story. First, we looked at companies that had hit a market cap of at least $400 million--and fallen by at least 75% from the highs they reached during the bubble years. Second, we counted insider stock sales from 1999 onward. (That's why Gary Winnick's tally comes to "only" $508 million on our list; he had sold a ton of Global Crossing stock before 1999.) And third, we included only stock sold by top executives and board members; the quick profits made by the venture capital firms that funded the dot-com boom were excluded. (Also excluded in all but a very few cases--largely because it's impossible to track--was stock sold by company officers after they left their jobs. For the same reason, we did not include the cost of acquiring the shares; in most cases option prices were so low that including that cost would hardly affect the totals.) What we cared about, ultimately, was a simple, straightforward thing: How much cash did the top executives at America's Losingest Companies reap by selling their shares to the investing public?

Even with these fairly narrow parameters, the numbers are astounding. Executives and directors of the 1,035 corporations that met our criteria took out, by our estimate, roughly $66 billion. Of that amount, a total haul of $23 billion went to 466 insiders at the 25 corporations where the executives cashed out the most. Those are the companies that make up this list.

The top 25 include some big and obvious names: Cisco (CEO John Chambers: $239 million), for instance, and AOL Time Warner, parent of FORTUNE's publisher (chairman Steve Case: $475 million). But they also include companies you would be surprised to find on a top-25 list of any kind. Executives and directors at a software maker called Ariba raked in $1.24 billion even as its stock was falling from $150 to around $3. Yahoo executives reaped $901 million in stock sales while the company's shares fell from $250 to about $11. InfoSpace, once touted by its founder, Naveen Jain, as on its way to becoming the first "trillion-dollar" company, makes the list. In early 2000, by which time Jain had already taken out more than $200 million, he protested to FORTUNE that "investors...know I am committed to our long-term success." Now Jain's "trillion-dollar" company has a stock price of around 50 cents and a market cap around $145 million--and meanwhile, its founder has sold an additional $200 million or so. i2 Technologies, which makes supply-chain management software, now has a total market cap that is less than CEO Sanjiv Sidhu's haul of $447 million. Peregrine Systems is a deeply troubled software company that is on its third auditor in six months, has announced that it will restate years of revenues, and faces delisting from Nasdaq. Its stock is below 40 cents. But not to worry. Back before anyone realized that its revenues were misstated, chairman John Moores cashed out $646 million, enough to cover the losses of the San Diego Padres, which he also owns, for the next 85 years.

For the record, the company that tops our list is Qwest Communications, the beleaguered telecom. Company executives took down a staggering $2.26 billion, with then-chairman Phil Anschutz alone selling almost $1.6 billion of stock to BellSouth in May 1999. The price he got, $47.25, was nearly $8 a share above Qwest's market price at the time. Qwest now trades at a little more than $1 a share. Of course, Qwest has also announced that it had inflated its revenues over the past three years.

For an ordinary investor, it is nearly impossible to look at this list and not feel ripped off. In some cases insiders clearly cheated the investment community to realize their gains--by ginning up revenue numbers that have turned out to be phony. But even putting those cases aside, the billions of dollars of insider sales make absurd many of the rationales executives used to justify their new wealth. Take, for instance, the notion that executives were being rewarded for performance. Plainly, the executives on this list did not perform. They failed miserably; in many cases they failed even as they were bragging about how well they were doing and how much their stock would rise.

As for the idea that big stock and options grants would align the interests of shareholders and managers--that now seems equally absurd. What really took place was a breach of faith, with the insiders in effect betraying their shareholders by making sure that they themselves wound up rich no matter how badly things turned out for their companies or their investors.

Not surprisingly, most of the money was taken down at the height of the bubble, during the era of Dow 36,000 and day-trading mania, as a grand speculative fervor swept the country. For too many executives, the easy riches to be made were hugely tempting, and the moral (and sometimes legal) niceties easily ignored. All too often, the people who ran the companies that were the darlings of the bull market saw nothing wrong with taking a seat at the casino, selling high, and cashing out their chips. To put it another way, they got greedy.

To be sure, that wasn't true of everybody. If you look closely at the accompanying list, there are some names you will not find. David Filo, one of the two founders of Yahoo, is not there. Even as Yahoo's top executives sold hundreds of millions of dollars of stock, Filo himself sold nothing. You will also not find Gerald Levin, the former chief executive of AOL Time Warner. Say what you will about the wisdom (or lack thereof) of the AOL Time Warner merger, you can't say that Levin saw it as a shortcut to personal enrichment. He, too, didn't cash in.

It's tempting for some to see a cultural divide between executives of the old economy and the new. But really it's a moral divide between the CEOs and the CEO speculators. "By and large for the people doing it [selling their shares], the financial component of being in those companies outweighed the executive responsibility," says Michael Ramsay, CEO of Tivo, who sold less than $1.6 million of stock.

One of the most cogent explanations of what's wrong with this practice comes, amazingly, from Henry Nicholas, chief executive of Broadcom (No. 2 on the list) and a man who has taken out $799 million even as Broadcom's stock went from a high of $274 a share to around $22. In an interview, Nicholas said that he told his employees, "If you sold your shares to somebody at the top of the market, somebody has bought shares from you. Imagine it's your mother or grandmother--now she's lost half her money." Thinking about whom you're selling to isn't something the market should demand of ordinary shareholders--but isn't it worth considering for a CEO whose job, ultimately, is to make sure his shareholders do well?

Not surprisingly, most of the executives on our list declined to discuss their stock sales. Those who did often professed to be simply oblivious to the issue. "We really provided tremendous value," insisted Keith Krach, chairman of Ariba. His total take: $239 million--with his first sale coming a mere 122 days after Ariba's IPO and two days after the expiration of his unusually short four-month post-IPO lockup.

Says JDS Uniphase CEO Jozef Straus, who sold $147 million in shares within three months of taking the CEO spot in May 2000: "It was done in the middle of the growth market. Everybody was saying that it was going to be moving up for the next five years." Besides, he adds tellingly, "Why would I not sell? I was a shareholder like any other shareholder." Here's InfoSpace founder Naveen Jain: "Nobody believed [InfoSpace's stock] was overpriced. If I did, I would have been selling a lot more." Jain is a particularly egregious case; he actually got his company's underwriters to let him sell shares in a secondary offering before the IPO lockup period had ended.

And what of Henry Nicholas of Broadcom, who sold and sold and sold at prices as high as $260 a share as the bull market ran its course? "I would sit and talk to people [during the boom], and I would ask, 'How do we rationalize any of these valuations?'" he says. "There seemed to be a disconnect. I was sitting there going, 'Wow! Look at these valuations.' But I was also sitting there thinking, Maybe this is a new economy."

"I didn't go to business school," Nicholas adds--implying that he didn't have the market sophistication to understand that we were in a bubble. Now, of course, the investors who bought their shares from him ("Imagine it's your mother or grandmother") have lost well over half their money. But after telling us that he was in no position to know what value was "right" for his stock, he conceded that he had dramatically cut back his selling in 2002. Why? Because the price was "just too low."

It's important to note some caveats. Gateway founder Ted Waitt left Gateway for about a year--and stopped selling shares when he returned to take over the by-then-troubled computer maker. Indeed, he has recently been a buyer of Gateway stock. Others, including Case and Jain, have also bought back shares. Mind you, they've bought in much smaller amounts--and at much lower prices--than they sold: Case announced he was buying $24 million in AOL Time Warner stock, while Jain purchased InfoSpace stock when it got to $4 a share. "Sell high, buy low" doesn't exactly add up to a manifesto of corporate responsibility.

Several others, such as John Malone and Jim Barksdale, wound up on the list because they took board seats at AT&T and AOL, respectively, when their companies were bought. And then there's Jay Walker, who vehemently protested his inclusion on this list. Walker pointed out that he had plowed most of his net worth--$36 million--into starting up Priceline; that he had bought $125 million worth of Priceline stock in November 1999 at a price far above the IPO price; that he had personally lost $264 million in "two privately held startups that were built on my faith in the name-your-own-price concept"--and that he had never "dumped" his shares on small investors. Instead he had sold directly to sophisticated buyers, including Microsoft co-founder Paul Allen and Saudi Prince Alwaleed. "I believe," he wrote, "that this differentiates my activities from those of other entrepreneurs and corporate executives who clearly, in hindsight, were simply trying to take the money and run." Point taken.

Still, most of the people on this list did take the money and run--and even now they don't seem to feel too bad about it. Maybe just a little embarrassed. When FORTUNE asked an Ariba spokeswoman whether former CFO Edward Kinsey still had his estate next door to Larry Ellison in Atherton, Calif., the spokeswoman quickly corrected us. The house was "across the street, not next door." And anyway, she explained, Atherton--where Kinsey paid $22 million for an estate--is "really modest."

Perhaps the most honest response came from an officer of a company that just barely missed making our list. "I didn't need the money then, and I don't need the money now," he told FORTUNE. But, he added, "if I'd known there was going to be a witch hunt like this, I'd never have done it."

Look, nobody's saying that founders or CEOs shouldn't have been able to take a little money off the table. But this wasn't a "little" money--$66 billion is a huge sum, and the anger it has generated seems, quite frankly, justified. "It all comes down to your personal set of rules about what being an executive of a company really means," says Tivo's Michael Ramsay. Pace Jozef Straus, executives aren't "just shareholders like any other shareholders." Not even close.

REPORTER ASSOCIATES Eric Dash, Lisa Munoz, Jessica Sung