Martha Stewat Case Analysis

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Martha Stewart Case Analysis BACKGROUND Martha Steward was the chairwoman of the board of directors and the CEO of Marta Stewart Living Omnimedia. Before forming her own company, she used to be a stockbroker and later she elected to the NYSE board of directors. Stewart had shares in ImClone Company. Sam Waksal was the CEO of ImClone and Martha’s friend. When Waksal found out that the FDA was going to reject ImClone’s application for approval of its cancer drug. It is believed that he told Martha about the rejection which they knew would eventually result in the company’s significant stock price drop. Martha sold about 4000 shares that she had and avoided loosing approximately $45,000. Martha and Waksal had a mutual broker, Peter Bacanovic from Merrill Lynch .Waksal tried to call Bacanovic but he did not reach him. He then called Bacanovic’s assistant Doug Faneuil and told him to sell the stock. Faneuil then called Bacanovic and explained the situation. Bacanovic instructed him to call Martha and inform her of that. Martha then decided to sell her shares in ImClone. All of this happened one day before the FDA announcement that it was rejecting the drug. Merill Lynch and SEC began investigating this trade. Martha claimed that she had an agreement with her broker, Bacanovic, to sell the shares if the prices fell below $60 and claimed her innocence. Later during the trial, an expert witness testified that the ink used to make the notation about the $60 dollar agreement that Bacanovic provided was not the same as other ink on that paper. Martha claimed that she was worth $750 million and the loss of about $45,000 that she avoided was only a small fraction of her worth. In 2002, Waksal was arrested and charged with insider trading. In October 2002, Douglas Faneuil pleaded guilty to taking a payoff to keep quiet about the Stewart stock trade and Waksal

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