Royal Caribbean CEO is Selling his Company Stock; Does He Know Something We Don’t?

Lipcon, Marguiles, Alsina & Winkleman, P.A

Down stockDoes Royal Caribbean President Adam Goldstein know something we don’t know? Is something going on within the cruise line that may be affecting profits? There are many reasons for share holders to sell their shares in a particular stock, but when you are a millionaire and the stock you are selling is in the company where you are the CEO it begs the question to wonder are you doing so because the value of that stock is at risk of falling ?

Goldstein made quite a splash in both the cruise industry and the media this week when he made the unexpected move of selling 2,181 shares in RCL stock worth over $80,260 on Monday, then selling another 16,717 shares yesterday for over $621,872. That may seem like quite a bit to the average consumer, but Goldstein is still holding onto a pretty large chunk of company stock. The CEO still has 318,937 shares in RCL stock, which equates to over $11,800,000, so maybe there is another reason for his selling, but buyers and holders beware. Something is up!

Our cruise ship lawyers have previously talked about how cruise line stock in general has taken a plunge following an unusually high number of accidents this year. While cruise accidents occur nearly every week, not all of them are public knowledge. Cruise lines, until agreeing to do so for crimes so just recently, were not required to report all crimes and accidents and therefore didn’t for fear that doing so would affect their reputation and revenues. Perhaps this recent change of events is what prompted the CEO to sell some of his stock, perhaps it is something else.

The fact remains that loopholes in the cruise passenger ticket contracts of the Big Three, Carnival Corporation, Royal Caribbean International and Norwegian Cruise Lines and those stemming from the cruise line’s ability to register their ships in foreign countries, enables them to avoid the legal and financial repercussions that come with a U.S. registry and this affect the way lines report crimes and accidents, as well their potential liability for those accidents and crimes.

Other  loopholes are the result of a discrepancy between serious accidents and crimes that are required to be reported to the FBI, Coast Guard and other maritime authorities and those that are not required to be reported and so usually  do not become public knowledge.  Maritime law requires cruise lines to disclose information regarding serious incidents such as sexual assault or rape to the FBI as soon as possible, but even these our experience has shown don’t always get reported “as soon as possible”.  Maritime law also states that ALL crimes must be reported, but this doesn’t include “alleged” crimes.  Cruise lines can – and do –  frequently take the position that since they are the investigative authority, until they decide that a “ crime “ has occurred,  that there was no actual crime to be reported because the investigation is in progress or because they simply don’t have enough facts to make the determination that it was a crime in the first place.

As is usually the case with self regulating entities the bottom line is that they tend to not document and report as many infractions as those entities that are investigated by those not financial compensated by the same entity they are regulating.

Only recently has the pubic been able to get a glimpse into the industry, including the failure to report crimes, lack of shipboard sanitation, lack of safety equipment and backup power generators, and even the appalling treatment of crew members, who are severely underpaid and overworked and frequently denied benefits due to foreign arbitration clauses in their contracts.

It wasn’t really until this last year that the cruise industry has really begun to undergo scrutiny from the U.S. for their lack of safety.

Starting with the Costa Concordia capsizing tragedy in January, 2012, cruise accidents and crimes have received better news coverage and have thus resulted in the opening of consumers’ eyes to the true nature of the industry.  And what exactly is that truth? The fact that while cruise vacations can be a lot of fun, they can also be very dangerous.

The Concordia accident led to the deaths of 32 people after the vessel’s captain, Francesco Schettino, decided to make a last minute change in the ship’s itinerary to perform a “salute,” causing the Concordia to crash into a giant rock ( the Captain claims was not on his nautical charts) and partially sink off the coast of Giglio, Italy.

But that’s not the only major cruise line accident that has been reported. This year has already, had several big news stories dealing with Cruise Line accidents.   Beginning with the Carnival Triumph fire in February, which left over 4,000 people stranded in the Gulf of Mexico without any power and amidst deplorably unsanitary conditions. Followed not to distantly by other reported mishaps on the Carnival vessels Dream, Elation and Conquest. Other cruise lines also reported seminal incidents, including Royal Caribbean’s Grandeur of the Seas, which experienced a fire in late May.

Many more maritime accidents and crimes have occurred daily and continue to occur worldwide on an almost daily rate, including sexual assault crimes, overboard accidents, robberies, and violent attacks. It would take several pages to disclose all the incidents that have actually taken place onboard cruise ships and on land excursions while the ship’s are docked in their respective ports of call in just the first seven months of this year, but the major incidents that have been made public knowledge have been egregious enough to lower consumers’ opinions of the industry.

According to a Harris poll conducted in the wake of the Triumph fire, trust in the cruise industry has fallen drastically as a result of that accident. While trust in Carnival has dropped the most, other lines, including Royal Caribbean, have also suffered as a result. When one cruise accident or crime is reported, it affects all other lines, especially because companies do not provide full disclosure of their individual incident reports. Naturally, consumers assume all lines are guilty of failing to provide a safe environment for their guests, so public opinion of the industry as a whole is affected.

As of last month, Carnival’s stock price dropped 33% from last year’s prices and Royal Caribbean isn’t far behind. In May, Royal Caribbean stock was selling at an average of $35 per share, an all-time low and a 30% plunge from its high of $50 in January 2012. This was before the Grandeur of the Seas fire on Memorial Day.

Royal Caribbean stock fell even more in the wake of the Grandeur of the Seas fire. RCL officials explained the fire will cost the line roughly 10 cents per share for the rest of the year, but despite a dip to $31.82 per share on June 24, RCL stock prices have been steadily rising and are up to over $37 per share currently.

So the question remains: Did Goldstein make a move to cut his losses or was there another motive for the transaction?

Did he sell his shares because RCL has made a promise to publicly disclose crimes onboard its ships following a Senate Committee hearing last week led by Sen. Jay Rockefeller and  he anticipate an even greater drop in prices once incidents start become public?

We may never know the real reason behind the RCCL’s CEO selling of his shares, but we do know that the cruise industry has traditionally been extremely resilient and that absent a 9/11 type incident (not a very real risk of that happening) involving a cruise ship, no matter what else happens, the industry will likely bounce back as quickly as it has fallen.

For it is still the best bang for your buck across the vacation option board.