Scandals: Martha Stewart and the ImClone Insider Trading Deal
A very famous scandal that has embedded ourselves in our history is the Martha Stewart scandal of 2003. Martha Stewart is a true success story of the American dream in effect. Starting as a housewife, Martha created her career by turning her previous business experience and career into a household name and an enterprise. Having established Martha Stewart Living Omnimedia, Inc. (MSO), which handled everything from print to television to merchandising, with her business partner Sharon Patrick in 1997 the company went public in October of 1999. She became entangled in an insider trading scandal only 4 years later.
Stewart was advised by her stock broker, Peter Bacanovic, that ImClone's cancer treatment drug had been denied licensing by the FDA. Bacanovic was also the broker for ImClone CEO Sam Waksal who informed him of the FDA decision and was liquidating his holdings as well. Bacanovic shared this information with Stewart who owned 4000 shares of ImClone. Because the drug meant a major investment for ImClone, the FDA refusal to administer it through drug trials was devastating information for the financial health of the company. The cancer treatment drug had already cost millions to develop and would have no promise of future cash flow following the FDA announcement.
Stewart used this inside information to liquidate her holdings in the company as well. When the knowledge about the cancer drug became public, ImClone stock dropped 16 percent following the announcement which would have totaled $45,673 in losses on her shares. After being investigated for insider trading Stewart was found guilty in March 2004 of conspiracy, obstruction of an agency proceeding, and making false statements to federal investigators. She was sentenced to five months in a federal correctional facility and a two-year probation. Following the scandal, the damage to Stewart's company had been done.
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