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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Dealer who wrote (54292)	8/9/2002 6:17:56 AM
From: stockman_scott	Respond to of 65232

Martha's troubles on front burner By Derek DeCloet Financial Post Wednesday, August 07, 2002 Admit it. You're rooting for it. You can't help but hope the FBI shows up at Martha Stewart's door one day (with TV cameras in tow, of course) and puts handcuffs on the woman who once called her husband "f---ing stupid" -- in front of guests -- because he failed to stack firewood according to her instructions. Ms. Stewart, who is probably the first insider trading suspect to sew her own drapes, sold US$227,000 in shares of ImClone Systems Inc. last December. The next day, the U.S. Food and Drug Administration said it would not approve ImClone's cancer drug; the stock has fallen 88% since, and ImClone's then-CEO, Samuel Waksal, was arrested in June on insider trading charges. The doyenne of domestic life, a friend of Dr. Waksal, claimed innocence, saying she had no inside information about ImClone. But she did know that members of the Waksal family were selling large blocks of shares because her broker's assistant told her. In Wall Street's view, that doesn't seem like much to worry about. "If all she got was her broker said it was time to sell because the rest of the family is selling, then I think she's in not bad shape," one media analyst told Bloomberg News. Shares in Martha Stewart Living Omnimedia Inc., which had dropped more than 50% since the ImClone story broke, rose slightly, presumably in relief that she won't be forced to tape her TV segments from the inmates' kitchen at Bayview Correctional Facility. We'll see. But don't be surprised if the Securities and Exchange Commission takes this latest allegation more seriously than investors did -- and that, if true, the news reports will do more to prove her guilt than her innocence. The issue is whether knowing the ImClone CEO was cashing out so much stock was, by itself, inside information. A case can be made that it was. Waksal family members sold US$9-million in stock the day before the FDA announcement, while Dr. Waksal himself is accused of trying (unsuccessfully) to dump US$5-million worth. Insider sales are often an indication of future trouble for a company, but when a CEO and his family try to sell that much in single day, it's obvious. The Waksals were not just trying to pay off their Christmas bills. If Ms. Stewart were still selling pies for a living, you could write off her ImClone trade as good fortune and luck. But she is a former Wall Street stockbroker and, more important, chief executive of a US$400-million public company. She is also a smart woman. At the time, it was well-known the FDA was near a decision on ImClone's cancer drug, and she probably knew the insiders were getting out. There is no doubt she is capable of putting the two together. Perhaps Ms. Stewart wouldn't be in this mess if it were not for the archaic rules on insider reporting. Securities regulators have gone to great lengths to force companies to disclose all material information in a timely way -- except for insider trading details, which usually aren't disclosed for days or weeks. In Canada, company insiders can report their trades up to 10 days after they've happened, by which time the information is generally useless. If insider stock sales are important -- and clearly, sometimes they are -- why do investors have to wait to find out about them? In fact, why shouldn't they be told before a share sale takes place? Ms. Stewart was, and that's the source of her grief. To all those who have felt inadequate because they buy bread instead of baking it, console yourself in the knowledge that at last she has run into a problem she can't cook her way out of. Last month, her chief financial officer said Martha Stewart Living's advertising sales have been slow and the company was struggling to sell new products. Some of this is the economy, but some may be the whiff of scandal. If it turns out to be real -- if Ms. Stewart is charged with insider trading -- it will destroy her image, the basis of what was once a billion-dollar company. And all to save her portfolio from a bit of damage. That, to use Martha's words, is pretty f---ing stupid. © Copyright 2002 National Post nationalpost.com{ACEB3D6A-8059-4832-930B-92CB88E6FF02}