From being a very successful businesswoman to calling a prison cell home, Martha Stewart has definitely had an interesting past couple of years. She started her career about 30 years ago with a catering business and has since built from that becoming the CEO and Chairman of Martha Stewart Living Omnimedia, Inc. Her success also includes the publication of her magazine Everyday Living, being the commercial spokeswoman for K-Mart, and having her own popular television show, From Martha’s Kitchen. She had built the reputation of being a public figure with how-to advice on creations in the kitchen to gardening. Despite these accomplishments, Stewart managed to become entangled in some insider trading scheme that damaged not only parts of her career, but also her public image.
Insider trading is the act of purchasing or selling securities based on material, nonpublic information. Information is consider to be material if a reasonable person would use it in such a way that would persuade them to partake in an exchange of securities, or if it was reasonable to believe that it would affect the market price of a security once the information has become public (Carlin 2003). Information can only be acted upon once it has been made public, otherwise, unfair trades would take place that could negatively affect the general public and shareholders of the company. Those who are employees of the company upon employment have a signed agreement to put the interests of the shareholders first. Acting on tips from within the company or other sources could negatively affect the corporation’s success, resulting in a shareholders loss.
Martha Stewart became involved with an insider trading scandal back in December of 2001. Suspicion came about when Stewart and other executives of a company called ImClone made a timely sale of their stock. Soon after, an investigation was launched by the Securities and Exchange Commission (SEC), who then brought charges against them of committing securities fraud by engaging in illegal insider trading (Carlin 2003).
The investigation traced all the way back to Stewart’s earliest involvements with ImClone. It discovered that Stewart and Samuel Waksal, a co-founder and former CEO of ImClone, had become friendly in the early 1990s (Carlin 2003). ImClone is a biopharmaceutical company that specializes in the development of treatments for cancer. They are incorporated with their headquarters in New York City, and are publicly traded on The Nasdaq Stock Market under the symbol IMCL. Among several products they have Erbitux, which is their leading product.
Stewart and Waksal both had accounts through the brokerage firm Merrill Lynch, where they shared the same broker, Peter Bacanovic. Stewart also had history with Bacanovic as it was reported that they have known each other since the mid-1980s. Stewart had become a client of Bacanovic in the mid-1990s and soon was one of his high profile accounts. Stewart placed Bacanovic in charge of...