Why did the Department of Justice launch an inquiry into the sale of ImClone shares in 2001?

By Andrew Beattie AAA
A:

On December 28, 2001, the FDA announced that it was rejecting ImClone's new cancer drug, Erbitux. The drug represented a major portion of ImClone's pipeline, so the company's stock took a sharp dive. On the surface, it was just another example of legislative risk in the pharmaceutical industry. But closer scrutiny revealed a number of discrepancies. Leading up to the FDA announcement, many friends and family members of Samuel Waksal, the company's founder, sold their holdings. In short, it looked like Waksal had tipped off his people.

Among the people who showed uncanny insight into the FDA approval process was homemaking guru Martha Stewart, who had sold 4,000 shares on December 27. At the time, the stock was trading just below $60 and Stewart collected nearly $250,000 on the sale. Over the following months, the stock plummeted to just over $10. Stewart claimed to have had a pre-existing sell order with her broker, Merrill Lynch's Peter Bacanovic, so the Department of Justice launched an inquiry. The story fed off of Stewart's fame and she was forced to resign as CEO of her own company, Martha Stewart Living Omnimedia.

As more insider trading allegations surfaced and further legal actions were announced, ImClone shares fell below the $10 mark. In 2003, Waksal was arrested and sentenced to over seven years in prison and fined $4.3 million. In 2004, Stewart and Bacanovic were also found guilty. On July 16, Martha Stewart was sentenced to the minimum of five months in prison and fined $30,000. She was released in 2005 and returned to her company as "founding editorial director". ImClone recovered from the scandal and the drug Erbitux gained FDA approval in a second trial. Former corporate raider Carl Icahn scooped up a controlling interest in the company in 2006 and wiped out much of the old board of directors to become the new chairman.

For more on this topic, read Uncovering Insider Trading and Measuring the Medicine Makers.

This question was answered by Andrew Beattie.

RELATED FAQS

  1. Does identity theft or credit card fraud also occur with cash-on-delivery?

    Understand the process of cash on delivery (COD) as well as where identity theft and fraud may occur and some techniques ...
  2. What methods are used to launder money?

    Learn about the methods that criminals use when they are looking to launder money. Many different methods are used, and they ...
  3. If caught, what implications does money laundering have on a business?

    Understand the damaging effects of money-laundering on businesses as well as anti-laundering measures businesses can use ...
  4. Is there any history of insider trading with Warren Buffett or Berkshire Hathaway?

    Read about the insider trading scandal between Lubrizol and Berkshire Hathaway in 2011, and see why insider trading is so ...
RELATED TERMS
  1. Financial Action Task Force (FATF)

    An intergovernmental organization that designs and promotes policies ...
  2. Banker Trojan

    A malicious computer program designed to gain access to confidential ...
  3. Black Market

    Economic activity that takes place outside government-sanctioned ...
  4. Bear Raid

    The illegal practice of ganging up to push a stock's price lower ...
  5. Cookie Jar Accounting

    A disingenuous accounting practice in which periods of good financial ...
  6. Financial Shenanigans

    Acts or actions designed to mask or misrepresent the true financial ...

You May Also Like

Related Articles
  1. Chart Advisor

    The Best Way Into Big Pharma? See This ...

  2. Investing News

    Will Bitcoin And Walmart Force Western ...

  3. Professionals

    Internships: Find The Best One For You

  4. Active Trading

    What Is A Pyramid Scheme?

  5. Trading Strategies

    What Is The Difference Between After-Hours ...

Trading Center