Case Study on Martha Stewart Insider Trading At Imclone Systems

Martha Stewart Insider Trading At Imclone Systems

Martha Steward is a business connoisseur popularly known for the insider trading scandal at Imclone Systems. She is the founder and CEO of the widely acknowledged Martha Stewart Living Omnimedia Inc. a company known for its interests in television, merchandising, publishing, electronic commerce and related international partnership among other interests. In the early 2000s, Martha Stewart was accused of insider trading whereby she had sold four thousand ImClone shares one day before the company’s stock nose-dived.

The charges of securities against Martha were thrown away, she was still found guilty of four counts of obstruction of justice and lying to the key investigators. She was sentence to five months of prison, two years of probation and five months of house arrest. The insider trading case at ImClone systems was also filled with great vagueness as it relates to retributive determination and aspect of being innocent or guilty.

A lot of issues came up from this insider trading case and a lot has been debated on central moral and ethical issues that surround insider trading practice. In many countries, insider trading is illegal regardless of the inside information provided secretly. With regard to the Martha Stewart case, insider trading was clearly evident. For instance, Martha had been a stakeholder of the biopharmaceutical company ImClone system incorporated.

This is a company that focused on advance oncology care and had come up with a new drug design- Erbitux which would have a treatment for patients with colon cancer. The licensing application has been provoked and would result to ImClone lose on share price. Merrill , Lynch’s senior broker, Peter Bacanovic had informed Martha about the drastic market change likely to happen in ImClone’s share price via his assistant Douglas Faneuil .

Mr. Faneuil has specified that the Waksals had sold of their securities from ImClone. Mr. Sam Waksal the CEO of ImClone had made a call directly to Bacanovic one of his brokers and dumped his company share to avoid any financial losses. From the secret information, Martha Stewart sold all her securities that totaled to 3928. From the insider trading perspective, Martha Stewart had no real responsibilities to other shareholders of ImClone as she was not in an official position to interfere with the operations of the company.

It is a clear indication that there was not any infringement of fiduciary duty in this situation. Unfortunately,  Martha Stewart did commit insider trading as she possessed material information about the ImClone financial crisis in addition to being deceptive to authorities of what information  she was provided with. On top of this, she might have been convicted of insider trading by the Securities and Exchange Commission [SEC].

In the Martha Stewart case, she had information on the ethics surrounding trading of the stock, but it can be argued that she was not cognizant of the changing aspects surrounding the offence when she sold off her shares. Martha would have defrauded and misled her shareholders as they had been provided with false information on the amount of shares she would have sold. These actions indicate unethical behavior and define lack of integrity.  The damages caused in such cases are evaluated as compensatory and punishing. Therefore, entrepreneurs should uphold to business law and ethics for exceptional growth of economy.

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