Moody's CEO Dumped Shares The Day SEC's "Wells Notice" Arrived -- And So Did Buffett!

Henry Blodget | May. 10, 2010

We think Moody's (MCO) should have immediately announced that the SEC had served it with a "Wells Notice" on March 18th, when the Wells Notice arrived, instead of waiting two months and disclosing this news in its 10Q.

The SEC gives companies and individuals "Wells Notices" when it it is gearing up to file formal complaints against them. In this case, the SEC says the Wells Notice may be followed by a "cease-and-desist" that would revoke Moody's license to be a ratings agency.

We think Moody's investors would have regarded the receipt of this Wells Notice as "material non-public information" (especially those who bought the stock in the past 7 weeks without knowing that the company was sitting on a Wells Notice.)

We suspect Moody's investors will also be interested to know that CEO Raymond McDaniel dumped 100,000 shares of stock at $29 a share the day the Wells Notice arrived. And that Berkshire Hathaway (BRK) sold ~678,000 shares that day and another ~300,000 or so in the week that followed.

Did Raymond McDaniel and Berkshire know about the Wells Notice when they sold their stock? If so, couldn't this be trading while in possession of material non-public information? (The filing says McDaniel's sale was an "automatic sale," but even so. Shouldn't he have to cancel an automatic sale if/when he gets material non-public info?*)

* UPDATE: A reader and former securities attorney John Carney say that the "automatic" sale here would eliminate the possibility of insider trading.