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STORIES ABOUT INSIDER TRADING |
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On May 26, 1999 the SEC would charge these 25 individuals with insider trading. For most of the defendants it was their first time buying any securities. All guilty parties will payback the profit plus some interest. The Cassanos, and the two friends who were in on the initial deal were also charged with disgorgement for tipping others, but will not have to pay this due to financial inability. "The illicit trading cut across all walks of life as the defendants include a banker, an attorney, a doctor, stock brokers, an engineer, a financial analyst, salesmen, small businessmen such as delicatessen and pizzeria owners, printer repairmen, and a school teacher." |
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r Stewart's sale, ImClone stock plummeted, and Stewart earned $228,000. Insider trading is illegal when a person trades a stock while in possession of material non-public information, according to the Securites and Exhange Commission. If you have information that the public doesn't know about or you got such information from an inside source, it is illegal to trade on that information. Sam Waksal, former chief executive officer of biotech company ImClone, was charged with insider trading. On December 27, 2001, it is alleged, Waksal got information that the Food and Drug Administration would on the next day announce its rejection of ImClone's applicaton for its anticancer drug. Waksal is charged with distributing the information to family members, thus creating a chain of people finding out through word-of-mouth, including Martha Stewart. Stewart has denied any wrongdoing. All the evidence points to Stewart knowing of this information and bailing out of ImClone's stock based on her new knowledge. Is Stewart guilty of insider trading? Some are skeptical, but either way, she may have gained $228,000, but she lost billions in her own stock and her own reputation. Martha Stewart, an idol to many, should have realized that trading ImClone stock on material nonublic information, through a broker who also manages money for ImClone insiders, and then lying about it, is wrong. The lasting damage to her company should definately make her realize, even if she isn't found entirely guilty. |
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Charges of making a false statement to the Ontario Securities Commission staff and authorizing the company to insider trading were given to Cowpland personally. M.C.J.C Holdings was also fined $1 million. Despite being five years later, the fact that the OSC reached a proposed settlement, and found the client guilty of illegal acts proves that Canada has an efficient financial system. The law was carried out and the rightful person fined. 
What’s ironic is that in 1999, Corel’s shares were selling as high as $64.65. This means that if Cowpland wouldn’t have sold his shares, they could have been worth $157 million! These drastic changes in stock prices strongly support the Efficient Market Hypothesis. Because markets are so unpredictable, information is spreading very quickly. This influences people to make rational decisions to expect what will happen, but proves that it doesn’t help to look at former stock prices. Instead, in an efficient market, it is current prices that reflect all
available information. Whether Cowpland would have kept his shares or made all his knowledge public, both his financial status and reputation would have been much better off in an efficient market setting. 
On Thursday, September 19, 2002, the Securities and Exchange Commission (SEC) began its investigation into the HealthSouth Corporation, the nation’s largest provider of outpatient surgery and rehabilitation services. When HealthSouth made its earnings announcement on August 27, 2002, earnings came in much lower than expected. The company announced it was reducing earnings estimates by $175 million based on a change in a Medicare billing policy. This announcement caused the stock price to plummet 44% on that day alone and a total of 58% in 2 days of trading following the news. Around this time, an SEC filing disclosed that Richard M. Scrushy, Chairman of the Board of HealthSouth, sold half his stake in the company weeks before the profit warning. Mr. Scrushy has defended his stock sale. He claims he cashed $74 million of stock options in May and used stock to repay a $25 million dollar loan from the company in July. He also insists that those sales were made without any knowledge of the potential impact of the Medicare ruling. Mr. Scrushy feels that investors have overreacted to HealthSouth’s disclosure of what the company considers a change in Medicare billing processes that will cut deeply into profits.
However, equity analysts feel that the stock is not being punished because of the company’s financial condition, but it is because investors feel they cannot trust management. (Abelson, Reed. “HealthSouth Tries to Allay Uneasiness of Investors.” New York Times 20 September 2002: C1) In light of this SEC probe, Standard & Poor’s has cut the company’s debt rating to junk status. 
Mr. Scrushy claimed that the company only learned of the full impact of this supposed “new” information about the Medicaid reimbursement policies on August 15, 2002. The Centers for Medicare and Medicaid (CMS) say that this is not “new” information, just a clarification of policy that has existed since 1999. Mr. Scrushy has challenged this remark by CMS, contending that the agency changed the policy in May. 
was denied for its cancer drug Erbitux has created controversy with the issue of insider trading. Stewart and her Merrill Lynch broker, Peter Bacanovic, have said Stewart's sale of nearly 4,000 shares of ImClone was in accordance with a previously established order to sell the stock if it dipped below 60. She denies having any inside information at the time of her sale. However, much evidence points to the fact that Stewart had inside information that resulted in her sale of the stock. On the day afte
Enron and Tyco, and left investors feeling shaky in a market marred with question factual reporting. The market was rocked again, in June 2002, when Martha Stewart’s name became tangled in claims of insider trading. Her association (close friendship) with ImClone’s CEO Sam Waksal may have provided her more trouble than tranquility, after her connection with the scandal caused a 19% plunge in Martha Stewart Living Omnimedia. The question boils down to “what did Martha Stewart know? And when did she know it?” So who is Martha’s “friend” ? Sam Waksal is an immunologist, turned biotechnology entrepreneur, with the street savvy of a used car salesman.
He founded ImClone in 1984 and no one knew his name. But, in 1999 his company became the “cat’s meow” due largely to the supposed success of Erbitux, a cancer treatment that looked more than promising. Waksal was had a rude awakening, literally, when he was arrested at 6 a.m. for his attempt to sell $5 million in ImClone shares and informed family members that they should dump their stock too. The cause of this sudden stock dumping came when Waksal learned that the Food and Drug Administration (FDA) refused to review Erbitux’s application. Waksal’s stock sale never went through, however, due to a rule (set by Merrill Lynch) barring employees from trading the stock due to the pending news on Erbitux’s approval. Waksal’s family did not run into these same problems, and his father sold $6.7 million and sister $2.5 million worth of ImClone. Insider information is an illegal practice in the United States. It involves any action involving stock purchase or sales based on privileged information to those within the company. This information is not public and thus is deemed “insider information”. Insider trading is a classic example of an abuse of power to make personal gains and these actions are watched closely by the SEC. 
The House Energy and Commerce Committee has requested Stewart to produce documents including: the stop-loss order, the executed sell (which indicates the time), and her phone logs. Erbitux’s Denial: Erbitux still has great potential and went far fast due to Waksal salesmanship and drive. It only real proof, however, came in April 1999, when Shannon Kellum (diagnosed with colon cancer) began using Erbitux. Just a few months later her incurable cancer tumors had shrunk to a fifth their previous size. This one example provided more than ample hype around the drug and ImClone. But, the FDA claimed that ImClone greedy eyes overlooked the proper steps involved in clinical trials, and the agency was prompted to deny its application. The problem lies in the fact that FDA protocol necessarily encourages insider trading, executives ultimate abuse their trust. August 8th Selection It Only Gets Worse: After being charged with securities fraud and perjury charges (June), the government has added new charges of obstruction of justice and bank fraud against Waksal. The indictment claims that Waksal secretly tipped two people (his father and sister) to sell ImClone shares. “Waksal then made misleading statements while under oath to the SEC regarding their communication during March and April”. The indictment goes further claiming that Waksal “allegedly forged signatures and pledged ImClone securities that he no longer owned to a obtain $44 million bank loan from Bank of America”. Waksal’s actions did not stop there. He also instructed people to destroy documents at ImClone’s New York office and destroy computer files and records pertaining to his overseas accounts in Switzerland and the Netherlands, when he learned the SEC had begun investigations. This case represents more than just insider trading; it represents how money, greed, and abuse of power, blind people. Waksal’s once noble vision of helping those with cancer, turned into an illusion of treating well off people to caviar. 
ImClone Systems is a biopharmaceutical company which experienced enormous losses within the last year. With it's stock price climbing, on NASDAQ, to $75.45 per share then falling to a low of $5.24 per share. This fluctuation occured between December 2001 and September 2002. Like most biotech and pharmaceutical companies it's stock price is voitile by nature. Investor constantly buy and sell biotech and pharmaceutical companies quickly deciding mostly on the progress and success of existing and up and coming drugs. This was the case of ImClone.
In December of 2001 ImClone's stock price rose to it's all-time high of $75.45 soley because they had discovered a medicine that is supposed to aid in cancer treatment, Erbitux. The internal tests were done and Imclone was ready to manufacture the medication. They were simply waiting for the Food and Drug Administration's (FDA) approval. But in early January, 2002, news broke out that the FDA would refuse to approve Erbitux. After this announcement, the stock price began to fall. Investors began to see there stock portfolio shrinking. 
Initially, the stock dropped because of the failure of Erbitux, but then it dropped even further after news that Waksal was involved with insider trading. The first of two drops in prices, while unfortunate, is understandable because of the industry. the charges brought up against Waksal, made the stock price fall even more and may be even more detrimental than the first. this is because it violates investor trust that the people running the company are honest and responsible. 
