Martha Stewart

Martha Stewart: Free Trading or Insider Trading?Sabrina FultsNovember 20, 2008I. Case Summary/IntroductionDr. Samual Waksal, founded ImClone in 1984 for the purpose of developing therapeutic products to treat cancer and cancer-related disorders.  The company was dedicated to developing biologic medicines in the area of oncology.  Things seem to be going good for the company and Erbitux, a new cancer drug, was the main reason their stock prices were soaring.  However, Dr. Waksal received news that the FDA refused to accept an approval application for ImClone’s new cancer drug.  The FDA would make this public information, which would cause the stock prices to take a drastic drop.  In order to reduce the financial loss for Dr. Waksal, his family, and close friends, he decided to inform them all to sell their ImClone stock before the announcement.  Martha Stewart, one of Dr. Waksal’s close friends, decided to sell 4,000 shares just before the news broke.The government had reason to believe that Martha Stewart had received insider information about her ImClone stock before the FDA made the public announcement.  This gave her time to sell her shares before the price drop.  An investor in Martha Stewart’s company also filed a lawsuit accusing her of insider trading in her own stock.  It seems that once she received information that the government was going to charge her with insider trading in ImClone stock, Ms. Stewart, sold large amounts of stock in Martha Stewart Living Omnimedia Inc.  This was to avoid a financial loss once they made public the charges that were filed.    II. Identification & Analysis of IssuesDr. Waksal started his company with all intentions of helping people fight cancer. However, with the news of not receiving FDA approval, he decided to make a selfish decision.  He knew that once this information was made public, he would suffer a great financial loss.  So instead of doing the right thing, he chose to notify some investors so that they would have...