Business Prof. Claes Fornell finally broke the silence yesterday and responded to an article in Tuesday’s Wall Street Journal regarding his actions that some have interpreted as possible insider trading. Fornell is the director of the University’s American Consumer Satisfaction Index, which gauges consumer satisfaction with various services and products.
“There has been no improper conduct by me or anyone else associated with the ACSI,” Fornell said in an e-mail addressed to the University Business School community yesterday, which he said was a “response to a series of personal attacks” on him.
“Acting prior to publication has not, and does not, provide a portfolio trading advantage … anyone who wants to check it can obviously do so,” Fornell said.
Fornell told the Wall Street Journal in an interview that he has held an ACSI-based portfolio since April 2000 and has recently traded some stocks in the index before the latest round of results were released on Tuesday. He said he did this in order to test his theory of positive correlation between consumer satisfaction and market value of the companies in the real world with real cash.
His actions have been criticized by and caught the attention of many market experts. The University responded to the incident by stating its intent to investigate the situation according to University policies.
“I have instructed anyone affiliated with the ASCI not to make personal use of the information gathered in the course of producing the quarterly index, prior to the index’s release to the general public,” said Business School Dean Robert Dolan in a written statement.
Fornell said he will comply with the dean’s statement and thus will not trade any of the stocks involved in the index before releasing the results to the public.
According to legal experts, this case would not be treated as one involving insider trading even though Fornell has used the information to trade in the market before the results were revealed to the public.
“If Michigan had no policy prohibiting the personal use of the information before it was publicly released, it will be very difficult to make out an insider trading case,” said Brad Bennett, a former attorney at the Securities and Exchange Commission.
He added that before a case can be filed, the SEC would have to prove the survey results are “material” – meaning investors would have considered it important in making an investment decision. But in this case, it is difficult to prove.
Despite the legal issues, critics said they did not welcome such behavior on Fornell’s behalf.
“It’s inappropriate for a public university to hold important information from the public,” said Mercer Bullard, a former assistant chief counsel at the SEC.
The ASCI dropped less than one point to 72.9 in the fourth quarter of 2002, and remained steady throughout 2002.