Cohen is the second most important executive at Warner Music after Chief Executive Edgar Bronfman and is responsible for artists like Red Hot Chili Peppers and Green Day.

Warner's shares fell more than 10 percent on Wednesday in mid-day trading.

Cohen's stock sale comes after Warner's shares had climbed nearly 80 percent from all-time lows in January, as long-held concern about the company's prospects in the beleaguered music industry appeared to be abating.

He sold 800,000 shares on Monday at $8.45 each for around $6.8 million, according to the filing with the U.S. Securities and Exchange Commission on Tuesday. He retains ownership of another 2.6 million shares.

Warner shares fell more than 77 cents to $7.27 on the New York Stock Exchange.

One Wall Street analyst said the sale by Cohen, chairman and chief executive of Warner Recorded Music North America, contradicted management's contention that the company's shares were undervalued.

"While Warner Music Group's (organic) revenues continue to decline, we are quite surprised to see Mr Cohen selling such a large block of stock at these levels," said Pali Research analyst Richard Greenfield, a long-time critic of the company's management.

Cohen said his confidence in Warner's future prospects remained as strong as ever.

"This sale reflects nothing more than a normal need for liquid assets for personal expenses, as well as my financial adviser's recommendation that I diversify my portfolio for tax and estate planning," he said in a statement.

Cohen renewed his contract in March and extended his employment until March 2013. The agreement gave him an annual base salary of $3 million, with potential bonuses of up to $5 million.

The amended contract also granted Cohen 1.5 million stock options with an exercise price of $5.29 as well as 1.75 million performance-based restricted shares.

(Reporting by Yinka Adegoke; Editing by Lisa Von Ahn)