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Conseco's Prieur, others suffering steep losses on purchase of shares

April 13, 2009

 Conseco CEO Jim Prieur keeps putting his money where his mouth is. He hopes it makes a difference this time. Prieur bought 200,000 shares of the Carmel-based insurer April 2 with his own money, according to a recent filing with the U.S. Securities and Exchange Commission. That makes 570,000 shares Prieur has purchased since March 2007, spending $3.3 million.

Other officers and directors have also joined Prieur in his bargain hunting, purchasing another 330,000 shares over the past two years.

Conseco has nearly 185 million shares outstanding.

The problem is, outside investors haven't taken the hints. Conseco's stock has steadily declined as Wall Street fretted about losses on Conseco's underpriced long-term-care policies. Then, when the company shifted most of those policies to an independent trust, investment losses threatened to force it to default on its loans.

Investors like to see a company's executives buy their own stock because they figure the insiders know the company best, said Mark Foster, chief investment officer at Columbus-based Kirr Marbach & Co.

But in this recession, no amount of insider buying has been able to reverse a company's slide, he added.

"While it's been a pretty good indicator historically, this go-round it hasn't really worked," Foster said.

Companies where executives have gone on stock-buying sprees include many major financial companies such as Citigroup, Wells Fargo and JPMorgan Chase, according to filings with the U.S. Securities and Exchange Commission.

Foster said Kirr Marbach screens insider purchasing at all public companies once a day. If one shows activity, the firm does more evaluation to see if it's a good buy.

"It's a good way to identify new ideas," Foster said. "The insider buys can be a good signal that something positive is going on."

But in Conseco's case, any confidence exuded by insiders hasn't been enough to overcome other factors. The company's most recent crisis came in February when its auditor threatened to issue a warning about Conseco's ability to stay in business because it feared mounting investment losses could cause the company to default on its $912 million in bank loans.

Conseco's stock bottomed at 26 cents.

But Conseco cleared the hurdle last month by renegotiating with its lenders.

Its share price is on the rise again. But it's nowhere near the levels of two years ago when Prieur started buying.

Prieur declined to comment.

In March 2007, Prieur purchased 100,000 shares for $16.66 apiece. In August and November of that year, he bought another 30,000 shares for an average price of $14.32. Other directors and officers joined in, scooping up nearly 116,000 shares.

The insiders took a break until Wall Street melted down in September. Bonds Conseco held in Lehman Brothers and Washington Mutual went bad when those companies collapsed.

Prieur stepped in and scooped up 200,000 shares at an average price of $4.63. Conseco Chairman Glenn Hilliard also joined in, buying 100,000 shares.

But the price kept dropping. In November, Prieur bought 40,000 more shares for $2.37 apiece and told Wall Street analysts they were about as low as they could go.

"At peaks in markets, you frequently see the expression being used that some shares are priced for perfection," he said. "At less than two times earnings, Conseco is now priced at the very other end of the valuation spectrum."

But this month, Conseco insiders entered the market again—at even lower prices.

Conseco executives Christopher Nickele, Russell Bostick and Susan Menzel bought nearly 60,000 shares combined, paying just $1.17 per share on average.

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