Martha Stewart Scandal

Impact on Stakeholders

December 27th, 2001 - Martha Stewart sold her shares after receiving a secret tip from her broker

December 28th, 2001 - the FDA makes their decision public about declining "Eribtux" public.

June 12th 2002 - Waksal was arrested for illegal insider trading.

June 4th 2003 - Martha Stewart and her broker, Baconavic were charged for nine federal accounts

March 5th 2004 - Both Martha Stewart and Baconavic were proven guilty and charged for their fraud.

• She sold the shares to avoid a loss of about $45,000

• The Food and Drug Administration decline the cancer treatment drug "Erbitux" which would cause a loss to the stockholders

• It would decrease the stock prices and the stock holders would not earn much profit

When?

Martha Stewart's brand was affected negatively

The whole brand is based on only Martha Stewart

her reputation is someone who is involved in illegal activities

Martha Stewart was banned from being the director of the company for 5 years.

The stock price of the company dropped 35%

The loss was so great that many shareholders sued Martha Stewart.

Kmart was affected by this scandal

It was one of the main retailers for MSO and it lost a lot of sales

Why?

Financial Statements

Martha Stewart lost more than 25% of her net worth, which before the scandal was $650 million.

Omnimedia stock price dropped 70%

How did the company hide their scandal

Is the business still "alive" today?

- it is still alive

-never made as much money as before the scandal

-Martha partnered with E & J gallo

-Martha branded homes

-Hosts tv shows

-Published a book

Scandal Methodology

- Martha Stewart denied what happened

-Argued that she had an order with Merrill Lynch broker and Peter Bancanovic

-she had to sell the shares if they went below $60.

Accounting scandal that occurred?

Insider trading is the accounting scandal that took place in this case

Effects

Insider trading is the illegal use of trading on the stock exchange for one's own advantage through having access to confidential information.

• The shareholders who bought the shares from Martha Stewart and Sam Waksal suffered a loss

• Other Stakeholders due to the stock price decrease

• The Imclone company had a loss in revenue of 15%

Sources

What Martha Stewart Did Wrong. (n.d.). Retrieved November 03, 2016, from http://coveringbusiness.com/2012/05/15/what-martha-stewart-did-wrong/

Summary of the scandal

Who was involved?

By Mike Moffatt Economics Expert. (2015). The ImClone Insider Trading Case: What did Martha Really Do? Retrieved November 02, 2016, from http://economics.about.com/cs/finance/a/insider_trading.htm

• Martha Stewart refrained from losing $45, 673 by selling her 3928 shares of her ImClone Systems stock.
• She sold these stocks on December 27, 2001.
• Martha avoided this loss after she received info from her broker that was not public.
• After she sold her shares the stock value of ImClone Systems fell by 16%.

Feds close to charging Martha, newspaper says. (n.d.). Retrieved November 03, 2016, from http://money.cnn.com/2003/02/06/news/companies/martha/index.htm

Martha Stewart

Sam Waksal

Peter Bacanovic

Martha Stewart Scandal

Peter Bacanovic

What was the scandal?

Effects

Who went to jail?

• Martha Stewart sold her stake in the biotech company Imclone.

• She sold about 4,000 shares of the company that she invested in

• the Food and Drug Administration publicly announced about rejecting their cancer treatment drug, Erbitux

Martha Stewart

Overview Of Martha Stewart

Did accountants outside the company help her hide the scandal

Samuel Wakson

• Martha Stewart's business was divided into 4 businesses they were Publishing, Internet, and Broadcasting and Merchandising

• Some examples are Martha Stewart Living, and Martha Stewart Weddings and Everyday Food

• The company has television programs such as Martha Stewart's Cooking School, and Martha Bakes

There were no accountants outside of the company that helped the company to hide their scandal

Who inside the company helped to hide the scandal

• Avoid brokers that give you non-public information.

• Peter Bancanovic, Martha Stewarts ex stockbroker informed about the FDA decision

• ( Food and Drug Administration) rejected ImClone’s main drug called Erbitux for cancer treatment

• Martha Stewart sold her shares of ImClone day before the FDA rejected to review over their application of Erbitux.

• Martha should have documented that she would've sold her shares if they were to fall under $60 per share.

IFRS Rules Broken

Recommendations

Recommendations

• Have government agents working as insiders

• Create a positive work environment

Sam Waskal, ImClone’s chief executive found out about FDA rejecting ImClone’s main drug Erbitux for cancer treatment

he sold his shares of ImClone of $5 million a day before the FDA rejected to review over their application of Erbitux

Sam Waskal told his daughter to sell her shares.

Principle of conservation states that accounting for a business should be reasonable and fair

Business entity states that personal affairs must be separate from the business.

Who inside the company helped hide the scandal