In-stock trading involves trading of a public company’s stock and securities using information not present in the public domain. This business practice is also called insider trading, and it has been illegal for the more considerable portion of the corporate history in America. Since 1909, when the Supreme Court established the concept of insider trading, the precedent has been since built on to account for many historical convictions in America (The New York Times, 2016). Usually, the transactions conducted using inside information often leads to the persons obtaining large amounts of profits from the trade. This paper takes a look at one the country’s most famous in-stock trading convictions.
Most of us have heard about the ImClone Stake case involving Martha Stewart. Stewart’s scandal included in the aforementioned company, a biopharmaceutical firm that she had stocks (Baykal, McAlister & Sawayda, 2011). She sold ImClone shares amounting to about 4000 shares in number in December 27th, just a day before the Food and Drug Administration (FDA) denied the company a review on their cancer drug (Erbitux). ImClone’s shares took a nosedive when the FDA made the announcement. Similar transactions were conducted by other ImClone’s insiders (Baykal, et al., 2011). The company’s counsel, John Landes, dumped stock worth $ 2.5 on the second of the same month, while the company’s marketing vice president sold $ 2.1 million (Baykal, McAlister & Sawayda, 2011). Additionally, four other company officials disposed their shares between December 12th and 21st.
Although they argued that the move was coincidental, investigations into the matter revealed otherwise. Just after the company’s CEO (Sam Waksal) knew about the FDA’s position on Erbitux, he asked his stock broker to make a transfer worth $ 4.9 million in ImClone shares to an account under his daughter (Baykal, McAlister & Sawayda, 2011). Coincidentally, the stock broker managed both Stewarts and Wiksals shares. Besides, the daughter instructed the broker to sell her own ImClone stock worth $2.5 million. Waksal later tried to sell the shares in his descendant’s account, but was blocked by Merril Lynch, a brokerage firm (Baykal, McAlister & Sawayda, 2011). According to phone call records, immediately after Waksal’s daughter dumped her stake in the company, there was communication between Stewart and the broker.
On June 12 of the following year, Sam Waksal was arrest on obstruction of justice, instock trading, and account of bank fraud (Baykal, McAlister & Sawayda, 2011). Furthermore, previously filled securities fraud and perjury charges were included in his case. He incessantly pleaded not guilty for 9 months but ultimately confessed to insider trading and six other crimes of the thirteen charges he was accused of (Baykal, McAlister & Sawayda, 2011). He said, “I have made some terrible mistakes, and I deeply regret what has happened (Baykal, McAlister & Sawayda, 2011, pg. 3).” The judge convicted him to seven years in prison although he got out after having served five only.
Similarly, Martha Stewart vehemently denied any improper conduct during the sale of her stake in ImClone. According to her, she was flying to Mexico with her two friends on the 27th in December for a vacation (Baykal, McAlister & Sawayda, 2011). While in her private jet, she called the office to check for important messages. She was greeted with the news from her broker that her claim in ImClone had fellen below $ 60 per share. In her defense, Stewart demanded that she had a standing ‘stop-loss’ order to trade her stokes if they fell below $60 per share (Baykal, McAlister & Sawayda, 2011). She then said that she ordered her broker to sell 3,928 shares then called her friend, CEO of ImClone, Sam Wiksal. Unfortunately, she could not reach him so her assistant left a message for Wiksal stating that she was suspicious of activities at the company and that she wanted a clarification on the matter (Baykal, McAlister & Sawayda, 2011). Wiksal did not get back to her. By the time the sale was being made, she was already on her way back from Mexico.
At the moment the prearrangement story seemed solid and believable. However, Douglas Faneuil, the broker’s assistant, made a contradicting confession (Baykal, McAlister & Sawayda, 2011). Faneuil told Merril Lynch lawyers that his boss, Stewart’s stockbroker, had stressed him into confirming false claims about the ‘stop-loss’ order. According to Faneuil, the prearrangement did not exist at all (Baykal, McAlister & Sawayda, 2011). Initially, he appeared to back Stewart’s story but later on Faneuil told the prosecuting attorney that the stockbroker encouraged him to inform Stewart that the Wiksals were discarding their stocks in ImClone.
In Faneuil’s interview with law administration officers, he admitted that he had not revealed the true reasons for the sales and the intentions of his supervisor (Baykal, McAlister & Sawayda, 2011). The investigators also uncovered that in exchange for lying, he received money or other material variables. Accordingly, on October 2nd Faneuil confessed guilty to a misdemeanor charge. He was slapped with a $2,000 fine and did not receive any jail time. On the other hand, his supervisor was fired for refusing to cooperate with federal officers. In August 2004 a probe was started into Stewart (Baykal, McAlister & Sawayda, 2011). She was found guilty of lying to federal officials in June 2004 and four obstruction of justice accounts. The judge gave her a five-month sentence and two years of supervised release (The New York Times, 2016). Also, she was fined $30, 000 despite her claims of innocence.
Indeed, in-stock trading has a long history with the United States corporate system. The practice is illegal. The Supreme Court has long set the precedent of convictions. An example of a famous insider trading scandal in the US involved ImClone and Martha Stewart. Both the CEO of the company and Stewart dumped their stock based on the information about the FDA’s decision. They both got jail sentences for their offences.
