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News Release: Groups Sign Stock Buyback Petition

Submitted by on June 26, 2019 – 9:29 am

FOR IMMEDIATE RELEASE

June 26, 2019

CONTACT: Carter Dougherty, carter@ourfinancialsecurity.org, (202) 251-6700

Statement on Stock Buyback Petition

Today, AFR Education Fund and 18 other organizations jointly submitted a petition to the Securities and Exchange Commission urging the agency to abandon old rules that govern stock buybacks in light of their rampant abuse by corporate America since 1982.

That year, the SEC enacted a rule that granted companies “safe harbor” from liability for price manipulation via stock repurchase programs, opening the door to rampant abuse. Last year, the massive tax cut passed by Congress and signed into law by President Trump gave companies war chests of unprecedented size to boost share prices through stock buybacks.

Before the 1982 rule, companies used to avoid buyback programs because of the potential for litigation. Now, these buyback programs effectively constitute SEC-sanctioned market manipulation, by executives whose compensation is directly tied to share prices. 

Analysts estimate that in 2018 corporations used nearly 60 percent of their corporate tax cut to repurchase stock,” the groups wrote in their petition. “In other words, at a time when wages for average workers have failed to keep up with inflation, corporations have used the corporate tax break to collectively pay $806 billion to executives, boards of directors, and large share sellers.”

The groups proposed two solutions to shut down this self-serving spending spree. The SEC should first repeal the 1982 rule 10b-18, which allowed corporations to get away with setting up buyback programs for their own personal gain. The second step is to set up a regulatory framework to prevent future price manipulation. 

“The money that is being siphoned off from earnings to increase executive bonuses doesn’t just make wealthy insiders wealthier,” said Heather Slavkin Corzo, senior fellow at Americans for Financial Reform. “It is money that could have been used to invest in making the business more competitive and pay workers living wages.” 

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