Case Name: Martha Stewart Living Omni media Inc.: An Accusation of Insider Trading
Case Pages: 416 – 422
Facts: Her name pronounces itself across cookbooks, magazines and even has its own show on Style and The Learning Channel. It now pronounces itself with yet another captivating theme, as part of one of America's major scandals. Martha Stewart may be America's most famous businesswoman. Considered a "cultural icon", she made a name for herself through the fundamentals of home-making. As an expert on home decorating, cooking, gardening, elegant weddings and do-it-yourself crafts, Martha entered the homes of millions of Americans with the 1982 publication of her book Entertaining. Eventually, she turned her book and a small catering business into an empire. By 1999, Martha took her company public on the New York Stock Exchange as Martha Stewart Living Omnimedia. The new company astounded Wall Street with its opening stock rising from $18 to $52, and finally settling at a solid $36. Her once small business now includes a website, 27 books, two magazines, two TV shows and a partnership with Kmart. However, despite one's wealth, success and fan base, people make mistakes. On December 27, 2001, Martha made one that put her career, her company and her reputation in jeopardy.
Ethical Issue: In December 2001, she sold about 4000 shares of Imclone, a biotech company, a day before its share prices fell, (due to FDA's rejection of its application for a new cancer drug).
Outcome: When news of this sale came to light in June 2002, she was suspected of making the sale on the basis of non-public inside information. This controversy had a negative impact on her business. In this context, analysts questioned the wisdom of associating a company too closely with a person.
Additional Comments: Stewart’s first mistake was early on. On June 12, 2002, when news of the investigation broke, Stewart issued a statement in which she claimed...