ImClone Case (Martha Stewart)

The Imclone case is a security fraud of stocks by Martha Stewards which occurred in December 2001 when Martha sold her shares of the ImClone system without the company’s knowledge. The Imclone Corporation is a company involved in production of medicine to fight cancer. The company’s stock price dropped very tremendously after its medicine Erbitux, an experimental antibody failed to be accepted by the Food and Drug Administration (FDA). This was as a result of secret selling of stocks by the stockholders including Martha whose stocks were worth $230,000. She sold her shares one day before the FDA’s approval of Erbitux after her broker, Peter Bacanovic, told her that Imclone was at the verge of failure. Her involvement was a not known until Doug Faneuil, Peter’s assistant, told investigators about it. She was taken to court and charged with security fraud, objection of justice and perjury. Stewards was found guilty and jailed for five months. She was late sentenced to house imprisonment for another five months and later a two years of probation in the year 2004. This paper will analyze how the Imclone case attracted the attention of the Security and Exchange Commission (SEC), the claims of the case, the right punishment for Stewards, and the factors to be considered when buying stock and why it is important to involve SEC during stock transactions.

The Security and Exchange Commission is a government agency that deal with stock transactions and crimes involved in stocks. Insider trading was the main reason that made the Imclone case to attract SEC’s attention. Stewart was involved in insider trading which is against the SEC’s policies. She possessed confidential information about the company’s chief executive officer, Waksal. The CEO had earlier sold his $5 million worth of stocks before the FDA’s decision (Brickey, 2005). This was done secretly but Stewart got the information from hers and Waksal’s mutual broker, Peter, through bribing, that Waksal was dumping his stock which meant that the company would fall. She sold her stock one day to the FDA’s decision to escape the loss. The agency requires insiders to disclose such information to the public and Stewart was not an insider. Several other stockholders were involved in the illegal transactions.

Several claims were made in Imclone case. First, according to SEC, Stewart’s transactions violated the duty to avoid trading on the information in question. She was not allowed to trade because she was not in the directors’ team and was not an insider. She traded the stock on a bribe. Secondly, the court claimed that Stewart needed to face the law for obligation of justice and perjury (Stabile, 2004). Before being exposed by Peter’s assistant, Stewart had claimed to be innocent in court. She said that she never had information about Waksal’s trade and that her sale was as a result of an agreement between her and her broker to sell the share if the value went below 60 dollars. She even went ahead to try and change the phone conversation between her and the broker, Peter.

Martha Stewarts deserved to be prosecuted. She is a billionaire who used leaked information to dump stocks she could have afforded to loss to a poor shareholder even though she knew that the company was crumbling down (Brickey, 2005). She was once a stockbroker and she understood what she was doing. Despite having lawyers who told her that what she did was illegal, she never pleaded guilty. Thus, no mercy should have been shown to her.

Martha Stewart’s fame made things smooth for her. Money enabled her to get the best lawyers for her case and she was able to pay the heavy fine imposed on her (Rawls, 2009). Also, in a world where fame and money talks, the rich can get away with anything. Stewart only received a five- month’s jail term and probation when she deserved to be jailed for a long time.

A company’s stock price is determined by several factors. One, economic and political factors. An act of terrorism in a country can negatively affect economic activities thus leading to fall in stock prices. Secondly, Investor sentiment can help increase or decrease stocks prices. According to Heins & Allison (1966), optimistic investors can cause a rise in the market thus raised stock while pessimistic investors can lead to failure of market thus low stock prices. Also, industrial performance can affect the stock price. Same industry companies often perform the same but a failure in one company is an advantage to another as this reduces competition thus increasing the stocks’ prices.

When buying shares, one should put some factors into consideration. One, the economic condition of the country and other condition, like diseases and climatic conditions, which may lead poor productivity thus low earnings. Second, a shareholder should consider the marketability of the shares and how fast they can sell (Rappaport, 1999). Also, one should know the company’s partners, both local and international, and their competitors.

Publicly-traded companies’ executives are advised to report their stock transactions to SCE. According to Rappaport (1999), this helps to prevent the influence of stock prices by scammers who buy shares at a low price and later sells them at exaggerated prices.

Being a shareholder may be the best idea to financials freedom, but a companies’ shareholders have to work together as a team built in trust in order to prosper. The company should also follow the laws governing stocks ownership and transactions in order to prevent insider trading which may lead to the fall of a company. All information about shares should be made clear to be public so that investors who intend to buy stocks can weigh options before investing in a corporation.

References

Brickey, K. F. (2005). In Enron's wake: corporate executives on trial. United States:

            Northwestern University School of Law.

Heins, A & Allison, S (1966). Some factors affecting stock price variability. United States:

            University of Chicago Press.

 Rappaport, A. (1999). Creating shareholder value: a guide for managers and investors. United

            States: Simon and Schuster, 1999.

Rawls, K. L. (2009). Martha Stewart and Insider Trading. United States: Faculty Publications

            and Presentations.

Stabile, C. A. (2004). Getting what she deserved: the news media, Martha Stewart, and

            masculine domination. United States: Feminist Media Studies.