Martha Stewart and the ImClone Systems Case
Spoiler alert: contrary to popular belief, Martha Stewart did not go to jail for "insider trading," but rather for obstructing an investigation attempting to find out if she traded stocks based off of inside information. Martha Stewart resigned as chairman and CEO of the entertainment and homemaking empire she created, Martha Stewart Living Omnimedia, just hours after a federal indictment claiming that she and her stockholder at Merrill Lynch had lied to investigators concerning her sale of stock. The case in question involved her selling of shares in ImClone Systems, almost 4,000 per day, in 2001, right before the stock plummeted in value, saving Stewart almost $50,000. The cause of the sudden drop was the unexpected news that ImClone Systems' newest drug, Erbitux, had failed to get the expected Food and Drug Administration's approval. Numerous executives in the country, learning of the pending announcement of the drug's rejection, rushed to sell their shares in the company. The founder, Samuel D. Waksal, was arrested in 2002 for informing his family and friends about the decision: his daughter, Aliza, sold $2.7 million in shares; his father, Jack Waksal, sold of $8.1 in just two days; and numerous executives, including John B. Landes, the general counsel, Ronald A. Martel, the vice-president for marketing and sales, were charged as well. Samuel Waksal pleaded guilty to charges of insider trading in October 2002. In March 2004, Stewart was found guilty of all four charges against her and was sentenced to five months in prison, five months of home confinement, and two years probation. In 2006, Stewart settled the case with the SEC, paying a $150,000 fine and agreeing to a five-year ban from serving as the director, CEO, or CFO of any public company.