Insider Trading and Investor Confidence: Corporate Governance Risks in Public Tech Firms

Corporate governance in public technology firms has long been a focal point for investors, given the sector's reliance on innovation, transparency, and long-term trust. Recent insider trading activity at AvePoint (AVPT) underscores the delicate balance between legal compliance and investor sentiment. On October 6–7, 2025, AvePoint's Executive Chairman, Gong Xunkai, sold 60,000 shares through a Rule 10b5-1 trading plan, netting approximately $9.38 million, per the AVPT Form 4 filing. While such pre-arranged plans are designed to insulate insiders from accusations of trading on material nonpublic information, the timing and scale of these sales coincided with mixed market reactions to the company's Q2 2025 earnings report, raising questions about governance risks and investor confidence.

The Dual Narrative: Revenue Growth vs. EPS Underperformance

AvePoint's Q2 2025 results, reported in a press release Q2 press release, revealed a classic case of divergent signals. The company surpassed revenue expectations, crossing $100 million for the first time and achieving 31% year-over-year growth, driven by a 44% surge in SaaS revenue to $77.3 million. However, its earnings per share (EPS) of $0.01 fell far below the projected $0.06, leading to an 83.33% shortfall and a 2.02% post-earnings stock price drop. This disparity created a narrative tension: while institutional investors like Principal Securities Inc. increased stakes by 12,961.9% in Q4 2024, as noted in an institutional confidence analysis, insiders-including Gong and Director Jeff Epstein-liquidated significant holdings. Such conflicting signals can erode trust, as investors struggle to reconcile optimism about growth with skepticism about profitability.

Historical backtesting of AVPT's earnings events since 2022 reveals a pattern that contextualizes this volatility. On average, the stock has delivered a 2.9% cumulative return in the two trading days following earnings releases, with a 91% win rate-suggesting a short-term "earnings-reaction" bid. However, this edge fades rapidly: by day 30, the average excess return turns slightly negative relative to the benchmark, indicating a mean-reversion tendency. Six of the last eight earnings events followed this trajectory, reinforcing the tactical nature of post-earnings moves. For investors, this highlights the importance of timing and risk management when navigating mixed signals like those seen in Q2 2025.

Regulatory Safeguards and Their Limits

The SEC's 2022 Rule 10b5-1 revisions aimed to address these ambiguities by introducing cooling-off periods and stricter disclosure requirements. For example, directors must now wait 90 days after quarterly earnings releases before executing trades under such plans. AvePoint's use of a Rule 10b5-1 plan for Gong's sales aligns with these reforms, yet the market's reaction suggests that procedural compliance alone may not suffice to quell concerns. A Virginia Tech study on "attention trading" further complicates the picture, revealing that insiders often time sales based on retail investor sentiment-such as spikes in Google search volume-rather than firm-specific fundamentals. This strategy, while legal, risks perceptions of opportunism, particularly in speculative tech stocks.

Governance Implications and Investor Sentiment

The broader implications for corporate governance are clear. A ScienceDirect study found that insider purchases correlate with future innovation, particularly for high-quality patents, but sales are less predictive of R&D outcomes. This asymmetry means that large insider sales-like those at AvePoint-can be misinterpreted as signals of impending underperformance, even when executed under structured plans. Compounding this, recent enforcement actions by the SEC and DOJ, including the first criminal prosecution tied to Rule 10b5-1 misuse, are discussed in a Candor article, highlighting regulators' heightened scrutiny of insider behavior. For tech firms, where R&D intensity and market competition are high, the need for transparent governance frameworks has never been greater.

Conclusion: Balancing Compliance and Confidence

AvePoint's case illustrates the challenges of maintaining investor confidence in an era of evolving regulations and heightened scrutiny. While the company's strong revenue growth and improved operating margins demonstrate resilience, the juxtaposition of insider sales and EPS underperformance underscores the fragility of market trust. For public tech firms, the path forward lies in reinforcing governance mechanisms-such as active board oversight, real-time trade surveillance, and proactive disclosure-to align with regulatory expectations and investor demands. As the SEC's 2025 mandate for public insider trading policies takes effect, according to a Troutman article, firms that prioritize transparency will likely emerge as leaders in restoring confidence in an increasingly skeptical market.