Martha reaps what she sews.

By: Matt Baldiga, Justin Anderson,

Sonya Lorenson

Martha Stewart

Modeled after college, but stopped after having daughter, Alexis, in 1965.

Stockbroker after modeling until 1973 when recession hit Wall Street.

1976, began catering business with a friend from college.

By 1986 it had become a million dollar enterprise.

Martha Stewart cont.

Wrote articles for the New York Times and was editor and columnist for magazine called House Beautiful.

Stewart begins producing video tapes, dinner-music CDs, television specials and dozens of books on weddings, Christmas, gardening etc.

1987 signed advertising and consulting contract with Kmart for $5 million.

Martha Stewart cont.

Most of the ’80s she wrote for Family Circle magazine magazine but then started her own, Martha Stewart Living, in 1990.

Stewart and husband divorce in 1990. 1993 started her own half hour TV show,

Martha Stewart Living.

Martha Stewart cont.

1999 enterprises grew into conglomerate called Martha Stewart Living Omnimedia, Inc.

Corporation includes publishing, television, merchandising, Internet/direct commerce.

Chief executive officer and chairman until 2003. Company provides products in eight core areas:

home, cooking and entertaining, gardening, crafts, holidays, housekeeping, weddings and child care.

ImClone

Started in April 1984. Company in Healthcare Sector and Biotechnology

and Drugs sector. Advanced oncology care by developing a range of

specific biological treatments to address the needs of patients with cancer.

Focuses on three strategies for treating cancer: growth factor blockers, angiogenesis inhibitors and cancer vaccines.

ImClone

Erbitux is the company’s lead product, which is an antibody that has been approved by the FDA for use in combination with irinotecan in the treatment of patients with epidermal growth factor receptor.

Company currently in good condition, with approval of drug by FDA it had a net profit of $110 million in the last year.

Samuel D. Waksal

Samuel D. Waksal

Immunologist and businessman who founded biopharmaceutical company ImClone Systems in 1984.

Served as CEO of ImClone. Charged and convicted of insider trading

charges, plead guilty to charges of securities fraud, bank fraud, conspiracy to obstruct justice and perjury.

Peter Bacanovic

Peter Bacanovic

Martha Stewart’s stockbroker involved in the ImClone scandal.

He grew up in NYC and graduated from Columbia University in 1984.

He received his MBA from New York University in 1988.

The Trade

Martha was on her way to a vacation in Mexico when she called her office from the runway, while her plane refueled in San Antonio.

Her assistant had many messages one of which stated ImClone’s price was about to drop and to call her stock broker Bacanovic.

When she called Bacanovic he was unavailable at the time, so she spoke with his assistant: Douglas Faneuil.

It is alleged that Faneuil told Stewart that Waksal was trying to sell a significant amount of his shares because of the impending decision.

The Trade

The reason for Waksal wanting to sell his shares is because he knew that the FDA was going to announce the next day that they would not approve the cancer drug Erbitux.

After Stewart received this message she ordered for her 3,928 share be sold.

Stewart then flew to Mexico for a relaxing vacation.

SEC Investigates

On January 3, 2002 the SEC conducted a telephone interview with Faneuil.

The interview presumably covered three clients of Merrill Lynch: Waksal, his daughter Aliza, and Stewart.

In the interview Faneuil allegedly did not reveal all that he had told Stewart about Waksal’s attempted sale.

Investigation cont.

On January 7 the SEC conducted a telephone interview with Bacanovic himself.

Two false statements Bacanovic made in the interview constitute Count 2 of the indictment.

On January 28 the SEC asked Merrill Lynch for the documents concerning Stewarts account.

Investigation cont.

One of the documents was an annual assessment of Stewarts stocks, including a list of all her holdings.

ImClone had been check marked on the sheet, presumably for sale, and next to the check was written “@ $60.”

This “@ $60” would prove to be a crucial piece of evidence in the case.

Investigation cont.

The remark “@ $60” was important because it was written in blue ink that was “scientifically distinguishable from the ink used on the rest of the worksheet.”

This difference in ink led prosecution to believe that Bacanovic had added the remark after the sale to establish an alibi.

Investigation cont.

The next important piece of the prosecutions case came from Stewart herself changing a phone message that read “Peter Bacanovic thinks ImClone is going to start trading downward” to “Peter Bacanovic re ImClone.”

Stewart would later change the message back to its original contents, but the damage had been done.

Investigation cont.

On February 4 Stewart had a meeting with the F.B.I., the SEC, and the U.S. attorney.

During the meeting, which was not recorded, she allegedly made eight false statements in an attempt to cover up the details of the trade.

On February 13 Bacanovic testified before the SEC and instead of being alleged falsehoods, this time his statements were alleged perjury.

Investigation cont.

Bacanovic’s alleged perjuries include: He did not tell Stewart’s assistant that the

price of InClone was dropping. He and Stewart had not spoken about

InClone since the trade He described the “@ $60” remark He said he had not told Stewart that the SEC

was investigating her trade

The Trial

On January 27, 2004 the opening statements of the trial were given.

On March 5, 2004 both Martha Stewart and Peter Bacanovic were convicted of false statements, conspiracy, and obstruction of an agency proceeding.

They were both sentenced to 5 months in jail, 5 months of house arrest, and 2 years of probation.

After the Trial

Unlike many recent high profile scandals, such as Enron, Stewart never apologized for her actions.

Soon after the trial Stewarts defense team requested a new trial because Chappell Hartridge, one of the jurors on the Stewart/Bacanovic case, had lied on his juror questionnaire.

After Trial cont.

Hartridge had apparently stolen large sums of money from a Little League baseball team and physically abused his girlfriend, both of which he lied about.

The request for a retrial was denied and the convictions stood.

Shortly after this it was also discovered that the ink expert used for the trial had also made multiple false statements.

After Trial cont.

The veteran ink expert told the court that he had done all of the lab work himself. In reality the work had been done by other lab assistants.

This fact was verified by five lab technicians, however, this was not enough to be granted a retrial.

It was also later discovered that the expert had been banned for years from testifying in Canada for overstating evidence in a case.

Affect on ImClone

ImClone’s stock fell drastically after the news that the cancer drug would be denied by the FDA.

However, it was later approved and is now the companies leading revenue generator.

Today the companies stock is selling at $46.82/share and had a gross revenue of 80 million in the last year.

Affect on Omnimedia Inc.

The price of Omnimedia dropped significantly after Stewart was indicted and stayed fairly low throughout the trial.

However, it has slowly risen in price over the last few months and now trades at $18.57/share and the company has a net profit of $110 million.

Stock Chart of Two Companies.

Affect on Stewart