Billionaires Forced to Bail Out

The same kind of "deleveraging" that crippled credit markets also is slamming billionaires, chief executives, and other well-heeled investors where it hurts. After borrowing to buy stock, an unprecedented number of executives are being forced to sell off their holdings at steep discounts.

So far in October, almost $1.24 billion in stock has been sold by CEOs and other executives to cover debts, according to Ben Silverman, director of research at InsiderScore.com, which monitors SEC filings. Another $250 million in stock sales may also be related to so-called margin calls—when lenders force the sale of stock to cover debts.

Adding insult to injury, these stocks are being unloaded at what may be the worst possible time—when a typical equity has lost more than a third of its value this year.

The point was driven home on Tuesday, Oct. 21, when billionaire Kirk Kerkorian's Tracinda Corp. disclosed it sold off 7.3 million shares in Ford Motor (F) and may sell the rest of its stake in the automaker. Originally valued at almost $1 billion, Kerkorian's stake has lost more than two-thirds of its value as Ford's stock price has plummeted. It closed Tuesday at 2.17 a share, down 7% for the day. Though the exact reasons for Kerkorian's sale aren't clear, he had borrowed $600 million to buy the Ford stake and recently needed to use casino holdings to back that debt.

Kerkorian Has Plenty of Company

All in all, it's been a bad month for billionaires.

First Sumner Redstone, chairman of Viacom (VIAB) and CBS (CBS), sold $233 million in stock to help cover a loan. Then John Malone, chairman of Liberty Media (LCAPA), sold $49.5 million in stock to pay back a loan to Bank of America (BAC).

Chesapeake Energy (CHK) Chief Executive Aubrey McClendon may be the worst hit by this sort of stock squeeze. As Chesapeake's stock surged higher, the firm's enthusiastic founder borrowed to buy more and more shares. That worked until the middle of 2008: Since the beginning of July, Chesapeake shares have slid almost 65%. From Oct. 8-10, McClendon was forced to unload $569 million in his company's stock, or 94% of his stake in the firm, to cover those debts.

"The CEOs have been dreadfully surprised—just like the rest of the world," says Rawley Thomas of the Financial Management Association, an organization of financial professionals and academics.