Cowpland           Lotus           Health South          Arjun Sekhri
Martha Stewart           Uncanny Coincidence             Imclone


  Michael Cowpland

In February of 2002, Michael Cowpland, the former CEO of Corel Corporation, was charged with illegal insider trading. In August of 1997, Cowpland sold more than 2.4 million shares of Corel Corporation through his company, M.C.J.C. Holdings. These shares, worth nearly $20 million, were sold six weeks before Corel’s Q3 earnings report became public. At that time, M.C.J.C knew that the $94 million expected sales were in fact a $32 million loss. After the report was made public, Corel’s earnings per share dropped from about $9 to $2.30 by the end of the year.
Charges of making a false statement to the Ontario Securities Commission staff and authorizing the company to insider trading were given to Cowpland personally. M.C.J.C Holdings was also fined $1 million. Despite being five years later, the fact that the OSC reached a proposed settlement, and found the client guilty of illegal acts proves that Canada has an efficient financial system. The law was carried out and the rightful person fined.
What’s ironic is that in 1999, Corel’s shares were selling as high as $64.65. This means that if Cowpland wouldn’t have sold his shares, they could have been worth $157 million! These drastic changes in stock prices strongly support the Efficient Market Hypothesis. Because markets are so unpredictable, information is spreading very quickly. This influences people to make rational decisions to expect what will happen, but proves that it doesn’t help to look at former stock prices. Instead, in an efficient market, it is current prices that reflect all available information. Whether Cowpland would have kept his shares or made all his knowledge public, both his financial status and reputation would have been much better off in an efficient market setting.

1.Ontario Securities Commission
2.CBC News



On Monday June 5, 1995 IBM announced that they would takeover Lotus Development Corporation. The Friday before, June 2, 1995, an IBM secretary named Lorraine K. Cassano would learn this information and tip off her husband. Her husband Robert M. Cassano then relayed this information to two of his friends and entered into a profit sharing agreement with them. They purchased Lotus stocks and call options. As soon as the securities were purchased those two friends tipped off others, who tipped their friends, relatives, and co-workers, and when it was all said and done there were a total of 25 people with prior knowledge of the takeover. This knowledge turned out to total $1.3 million in illegal profits.





On May 26, 1999 the SEC would charge these 25 individuals with insider trading. For most of the defendants it was their first time buying any securities. All guilty parties will payback the profit plus some interest. The Cassanos, and the two friends who were in on the initial deal were also charged with disgorgement for tipping others, but will not have to pay this due to financial inability. "The illicit trading cut across all walks of life as the defendants include a banker, an attorney, a doctor, stock brokers, an engineer, a financial analyst, salesmen, small businessmen such as delicatessen and pizzeria owners, printer repairmen, and a school teacher."







On Thursday, September 19, 2002, the Securities and Exchange Commission (SEC) began its investigation into the HealthSouth Corporation, the nation’s largest provider of outpatient surgery and rehabilitation services. When HealthSouth made its earnings announcement on August 27, 2002, earnings came in much lower than expected. The company announced it was reducing earnings estimates by $175 million based on a change in a Medicare billing policy. This announcement caused the stock price to plummet 44% on that day alone and a total of 58% in 2 days of trading following the news. Around this time, an SEC filing disclosed that Richard M. Scrushy, Chairman of the Board of HealthSouth, sold half his stake in the company weeks before the profit warning. Mr. Scrushy has defended his stock sale. He claims he cashed $74 million of stock options in May and used stock to repay a $25 million dollar loan from the company in July. He also insists that those sales were made without any knowledge of the potential impact of the Medicare ruling. Mr. Scrushy feels that investors have overreacted to HealthSouth’s disclosure of what the company considers a change in Medicare billing processes that will cut deeply into profits. However, equity analysts feel that the stock is not being punished because of the company’s financial condition, but it is because investors feel they cannot trust management. (Abelson, Reed. “HealthSouth Tries to Allay Uneasiness of Investors.” New York Times 20 September 2002: C1) In light of this SEC probe, Standard & Poor’s has cut the company’s debt rating to junk status.
This disclosure of information has brought on several class action lawsuits against the firm and it’s top executives. The suits question the timing of the stock sales by top executives and whether information was kept from shareholders who lost around $2.7 billion in the initial price plunge. The complaint asserts securities fraud claims under sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The complaint alleges that HealthSouth and its officers made materially misleading statements and omitted to disclose material adverse information about the Company’s operations and prospects during the Class period of January 14, 2002 through August 27, 2002. In particular, HealthSouth misled the market concerning revenue and earnings expectations by failing to disclose the impacts on its operations from certain Medicaid reimbursement policies. With these reimbursement policies, the company knew it would not come close to meeting its earnings during the Class Period, but held this information from the public. During this period, top officers sold over $100 million of the company’s stock at artificially inflated prices before the company had its earning announcements on August 27, 2002.
Mr. Scrushy claimed that the company only learned of the full impact of this supposed “new” information about the Medicaid reimbursement policies on August 15, 2002. The Centers for Medicare and Medicaid (CMS) say that this is not “new” information, just a clarification of policy that has existed since 1999. Mr. Scrushy has challenged this remark by CMS, contending that the agency changed the policy in May.
It’s interesting that the company has received support from several others in the industry, yet there are some executives who feel that HealthSouth’s billing practice is not consistent with Medicare policy. In the words of Alan Henderson, chief executive of RehabCare Group, “the industry said, ‘it must be O.K., because that’s the way everybody else does it.’ HealthSouth, let’s face it, is the industry. To be competitive with HealthSouth, you had to play the game the way they played it.” (Abelson, Reed. “HealthSouth Tries to Allay Uneasiness of Investors.” New York Times 20 September 2002: C1)
The company has agreed to cooperate with the SEC’s inquiries. HealthSouth has hired the law firm of Fulbright & Jaworski LLP, to conduct a review of the company and submit its results to the SEC. In a statement by Mr. Scrushy, “I have spent the past twenty years building the most profitable healthcare company in the business. Any challenges we face are here with or without me. As I have told the media and regulators, I am committed to getting all the facts out about the concerns expressed through a policy of complete transparency. I have done this because I know there has been absolutely no impropriety in anything I have done.” (“Statement from HealthSouth Chairman Richard Scrushy and HealthSouth Chief Executive Officer Bill Owens.” PR Newswire 25 September 2002.)
This case involves government regulation of the financial markets in the United States. The government regulates the financial markets for three main reasons: to increase information available to investors, to ensure the soundness of the financial system, and to improve control of the money supply. (Mishkin, Frederic. The economics of Money, Banking, and Financial Markets-Sixth Edition. Addison Wesley: Boston, 2003.) The Securities and Exchange Commission, which was established in 1934, addresses the first two reasons. The SEC requires corporations issuing securities to disclose certain information about their sales, assets, and earnings to the public and restricts trading by the largest stockholders in the corporation, ensuring the soundness of the financial system. With the information presented in this analysis, it appears evident that SEC should indeed investigate HealthSouth.

“Cauley Geller Announces Amended Complaint Adding New Allegations Against HealthSouth Corporation.” PR Newswire 13 September 2002.

“SEC investigating amid low earnings announcement; founder selling half stake.” The Associated Press 19 September 2002.

· “Cohen, Milstein, Hausfeld, & Toll Files Class Action Securities Fraud Suit On Behalf of Investors Who Purchased HealthSouth Corp., Securities.” Business Wire 3 September 2002.

 · Appin, Rick. “HealthSouth snared in Accounting Mess.” Bank Loan Report 22 July 2002.

· “HealthSouth Corporation Securities Purchasers Represented by Schatz & Nobel is Class Action Lawsuit.” PR Newswire 13 September 2002.



  Arjun Sekhri

Stealing. Not a very welcome word on the floor of the New York Stock Exchange. However, this was the only way in which Indian native Arjun Sekhri could make millions. I chose to research this man not because of his enormous profits, but because of the enormous sum he must pay as a penalty for his unfair play in the stock market. I believe this shows that our government is aware of the insider trading that may be going on and they will make an example of anyone they can. Sekhri had been in a very trustworthy position at Salomon Smith Barney and had squandered all this trust for his insatiable greed. Sekhri’s criminal past actually dates back to 1988, however, he remained in his position until he found out that the S.E.C. (Securities Exchange Commission) was investigating his illegal insider trading. After hearing the news he had fled the country to India, and was later picked up as a year old fugitive in Australia. Sekhri had been charged with using information not publicly released on six huge mergers in order to reap a profit. He had spread the word to family and close friends (Mahendar Sekhri, Amolak Sehgal, Pratima Rajan, Faud Dow, Gordon W. Cochrane, Martin L. Thifault, Rohina Sharma, Sharad Kapoor) and as a grand total they had taken 2.57 million dollars illegally from uninformed traders. The eight other criminals have paid back their 1.6 million dollars already. Sekhri, on the other hand, has gotten quite the sentence. After spending 24 months in jail, he was forced to pay the $957,892.55 that he illegally obtained. On top of that, he had to pay pre judgment interest of $376,879, as well as the maximum civil penalty of $7,727,772.21. I wonder if Sekhri ever thought that his $957,892.55 profit could lead to a 9.06 million dollar penalty as well as 24 months in jail. Our country depends on the security as well as the dependability of the stock market, and with the harsh penalties of the S.E.C. I feel a whole lot safer investing my money.


U.S. Securities and Exchange Commission. Litigation Release No. 16202 / June 30, 1999.
U.S. Securities and Exchange Commission. Litigation Release No. 17636 / July 30, 2002.
Shankar, R.S. “Ex-Banker Sekhri Denied Bail.”



Martha Stewart

Martha Stewart's sale of pharmaceutical company ImClone's stock the day before regulatory approval was denied for its cancer drug Erbitux has created controversy with the issue of insider trading. Stewart and her Merrill Lynch broker, Peter Bacanovic, have said Stewart's sale of nearly 4,000 shares of ImClone was in accordance with a previously established order to sell the stock if it dipped below 60. She denies having any inside information at the time of her sale. However, much evidence points to the fact that Stewart had inside information that resulted in her sale of the stock. On the day after Stewart's sale, ImClone stock plummeted, and Stewart earned $228,000. Insider trading is illegal when a person trades a stock while in possession of material non-public information, according to the Securites and Exhange Commission. If you have information that the public doesn't know about or you got such information from an inside source, it is illegal to trade on that information. Sam Waksal, former chief executive officer of biotech company ImClone, was charged with insider trading. On December 27, 2001, it is alleged, Waksal got information that the Food and Drug Administration would on the next day announce its rejection of ImClone's applicaton for its anticancer drug. Waksal is charged with distributing the information to family members, thus creating a chain of people finding out through word-of-mouth, including Martha Stewart. Stewart has denied any wrongdoing. All the evidence points to Stewart knowing of this information and bailing out of ImClone's stock based on her new knowledge. Is Stewart guilty of insider trading? Some are skeptical, but either way, she may have gained $228,000, but she lost billions in her own stock and her own reputation. Martha Stewart, an idol to many, should have realized that trading ImClone stock on material nonublic information, through a broker who also manages money for ImClone insiders, and then lying about it, is wrong. The lasting damage to her company should definately make her realize, even if she isn't found entirely guilty.

Martha Stewart Prosecution--
A Comedy of Injustice

By Paul Craig Roberts July 15, 2003

Martha Stewart is the Michael Milken of this decade.
This doesn’t mean that Martha--or Milken-- is a big time financial crook.
Daniel Fischel, professor of law and former dean of the University of Chicago Law School, demonstrated Milken’s innocence in his book, Payback: The Conspiracy to Destroy Michael Milken and His Financial Revolution. Wall Street wanted Milken and his upstart firm out of the way. Rudolph Giuliani, U.S. Attorney for the Southern District of New York, wanted to be mayor of New York. Milken was Giuliani’s career ticket.
Martha Stewart is the career ticket for James B. Comey, the current U.S. Attorney for the Southern District of New York.
Conservatives feel no sympathy for Martha. She is one of those rich people who support the Democratic Party, the raison d'ętre of which is to dispossess rich people like Martha. However, at stake is the
rule of law, not Martha.
The rule of law is what protects us from wrongful prosecution, injustice and tyranny. It behooves us to object when an ambitious prosecutor like Comey takes liberties with the law.
Martha Stewart is indicted, because in December 2001 she sold her shares of ImClone stock the day before the company announced that its cancer drug, Erbitux, was not approved by the FDA. Martha’s indictment originated in speculation that Sam Waksal, the CEO of ImClone, gave her “inside information” that the FDA had turned down the company’s application.
The investigation established that neither Martha nor her broker had any inside information. Martha’s broker noticed that Waksal was selling his shares and that the price was declining. He relayed the information to Martha.
 CEO might sell shares in a company he heads for a variety of reasons, but it is usually regarded as a sign that management has lost confidence in the company’s prospects--a good reason for investors to sell the stock.
If Martha had made a large speculative investment in ImClone based on Erbitux, she might have been following the FDA process. She could have concluded that Waksal’s sale of ImClone shares meant the drug had failed to gain approval. But this would not be a crime. Moreover, her investment was too modest to have any material effect on her wealth or to occupy her time in following the stock.
Martha and her broker had good reason not to suspect that Waksal’s sale indicated FDA disapproval of Erbitux. Insider trading applies to persons with a fiduciary relationship with the firm--a relationship that a CEO clearly has. As Waksal had inside information, his sale of shares prior to the public announcement is a red flag. Neither Martha nor her broker had any reason to believe that Waksal had gone off his head and decided to get himself indicted.
As neither Martha nor her broker had a fiduciary relationship with ImClone and as neither knew of the FDA decision, no felony charge of insider trading could be brought against her. An ambitious prosecutor might bring a civil action, arguing that knowledge that Waksal was selling is a form of inside information. But that should be the extent of the charge.
What, then, is the basis of Mr. Comey’s indictment of Martha for felony “securities fraud”? Hold on to your hat. Comey indicted Martha because she publicly declared her innocence!
According to Comey’s
“new legal twist” (prosecutorial language for acknowledging that the “crime” is not on the statute books), Martha’s declaration of innocence constitutes an illegal manipulation of the stock of her own company, Martha Stewart Living Omnimedia. By declaring her innocence, Comey alleges, Martha was attempting to prevent her indictment from driving down the shares of her company, which depends on her leadership.
Comey’s invented charge ignores the fact that in our legal system a person is innocent until proven guilty. At the time Martha declared her innocence, she had neither been tried nor found guilty. Martha is indicted for refusing to incriminate herself and publicly confess to Comey’s charge.
Comey follows up this preposterous charge with another. He indicts Martha for covering up a crime of which she is not accused! Comey accuses Martha and her broker of
obstructing the investigation of their insider trading; yet, the investigation was not only successfully concluded, but also found no basis for a felony charge of insider trading.
Law is supposed to be certain. But Martha owes her obstruction of justice charge to the uncertainty of the insider trading law. In a letter to the Washington Times (June 12, 2003) defending the indictment of Martha as an opportunity to make an example of a high profile person, U.S. Department of Justice (sic) official Corey J. Smith
wrote: “Insider trading is a complicated area of criminal law, and it is not always clear who can be charged with it.”
When a criminal investigation of insider trading in ImClone stock was initiated following the public announcement on Erbitux, Martha and her broker could not know whether they would be swept up in an expansive interpretation of a crime that lacks clarity concerning “who can be charged with it.” To protect themselves from a vague and undefined crime, they doctored their story. It is the doctored story that constitutes the obstruction of justice charge.
Regardless of your opinion of Martha, do you want to live under a
Catch-22 legal system like the one Comey has devised in which a person must incriminate oneself or be indicted for fraud?
The story gets worse. Comey owes his indictments to FDA incompetence.
It turns out that Erbitux is just as effective as ImClone said and should have been approved.

Paul Craig Roberts is the author of The New Color Line: How Quotas And Privilege Destroy Democracy, with Lawrence M. Stratton.




Uncanny Coincidence

Insider trading and aggressive accounting are just a few of the scandals that have caused the demise of Enron and Tyco, and left investors feeling shaky in a market marred with question factual reporting. The market was rocked again, in June 2002, when Martha Stewart’s name became tangled in claims of insider trading. Her association (close friendship) with ImClone’s CEO Sam Waksal may have provided her more trouble than tranquility, after her connection with the scandal caused a 19% plunge in Martha Stewart Living Omnimedia. The question boils down to “what did Martha Stewart know? And when did she know it?” So who is Martha’s “friend” ? Sam Waksal is an immunologist, turned biotechnology entrepreneur, with the street savvy of a used car salesman. He founded ImClone in 1984 and no one knew his name. But, in 1999 his company became the “cat’s meow” due largely to the supposed success of Erbitux, a cancer treatment that looked more than promising. Waksal was had a rude awakening, literally, when he was arrested at 6 a.m. for his attempt to sell $5 million in ImClone shares and informed family members that they should dump their stock too. The cause of this sudden stock dumping came when Waksal learned that the Food and Drug Administration (FDA) refused to review Erbitux’s application. Waksal’s stock sale never went through, however, due to a rule (set by Merrill Lynch) barring employees from trading the stock due to the pending news on Erbitux’s approval. Waksal’s family did not run into these same problems, and his father sold $6.7 million and sister $2.5 million worth of ImClone. Insider information is an illegal practice in the United States. It involves any action involving stock purchase or sales based on privileged information to those within the company. This information is not public and thus is deemed “insider information”. Insider trading is a classic example of an abuse of power to make personal gains and these actions are watched closely by the SEC.
June 24th Selection Stewart’s Connection: Martha Stewart’s connection as a close friend of Waksal was widely known. Investigators became suspicious of Stewart after learning that she sold $228,000 worth of ImClone stock on Dec. 27 (the day before the rejection of Erbitux’s application). Investigators have Waksal’s phone log indicating that Stewart indeed did call him the day Waksal learned of Erbitux’s fate. Stewart denies being involved in any illegal activity or of knowing any inside information. She claims she had a standing order with her broker to sell her shares in ImClone if the stock went below $60. Stewart has not been able to produce any evidence of an agreement with her broker Peter Bacanovic (Merrill Lynch). The focal point for federal investigators now must attempt to determine whether Stewart gave the go-ahead before or after placing her call to Waksal.

The House Energy and Commerce Committee has requested Stewart to produce documents including: the stop-loss order, the executed sell (which indicates the time), and her phone logs. Erbitux’s Denial: Erbitux still has great potential and went far fast due to Waksal salesmanship and drive. It only real proof, however, came in April 1999, when Shannon Kellum (diagnosed with colon cancer) began using Erbitux. Just a few months later her incurable cancer tumors had shrunk to a fifth their previous size. This one example provided more than ample hype around the drug and ImClone. But, the FDA claimed that ImClone greedy eyes overlooked the proper steps involved in clinical trials, and the agency was prompted to deny its application. The problem lies in the fact that FDA protocol necessarily encourages insider trading, executives ultimate abuse their trust. August 8th Selection It Only Gets Worse: After being charged with securities fraud and perjury charges (June), the government has added new charges of obstruction of justice and bank fraud against Waksal. The indictment claims that Waksal secretly tipped two people (his father and sister) to sell ImClone shares. “Waksal then made misleading statements while under oath to the SEC regarding their communication during March and April”. The indictment goes further claiming that Waksal “allegedly forged signatures and pledged ImClone securities that he no longer owned to a obtain $44 million bank loan from Bank of America”. Waksal’s actions did not stop there. He also instructed people to destroy documents at ImClone’s New York office and destroy computer files and records pertaining to his overseas accounts in Switzerland and the Netherlands, when he learned the SEC had begun investigations. This case represents more than just insider trading; it represents how money, greed, and abuse of power, blind people. Waksal’s once noble vision of helping those with cancer, turned into an illusion of treating well off people to caviar.




ImClone Systems is a biopharmaceutical company which experienced enormous losses within the last year. With it's stock price climbing, on NASDAQ, to $75.45 per share then falling to a low of $5.24 per share. This fluctuation occured between December 2001 and September 2002. Like most biotech and pharmaceutical companies it's stock price is voitile by nature. Investor constantly buy and sell biotech and pharmaceutical companies quickly deciding mostly on the progress and success of existing and up and coming drugs. This was the case of ImClone.

In December of 2001 ImClone's stock price rose to it's all-time high of $75.45 soley because they had discovered a medicine that is supposed to aid in cancer treatment, Erbitux. The internal tests were done and Imclone was ready to manufacture the medication. They were simply waiting for the Food and Drug Administration's (FDA) approval. But in early January, 2002, news broke out that the FDA would refuse to approve Erbitux. After this announcement, the stock price began to fall. Investors began to see there stock portfolio shrinking.
Despite the fall in stock price, some did not feel the same loss. One person who did not is ImClone's former CEO Samuel Waksal Waksal is accussed of insider trading, charged this past June. Prosecuters say that Waksal attempted to sell his shares of ImClone the day he found out that the FDA was not going to approve Erbitux. In addition, two family members sold their shares of ImClone the next day. After hearing that Waksal was charged with insider trading, the stock dropped.

Initially, the stock dropped because of the failure of Erbitux, but then it dropped even further after news that Waksal was involved with insider trading. The first of two drops in prices, while unfortunate, is understandable because of the industry. the charges brought up against Waksal, made the stock price fall even more and may be even more detrimental than the first. this is because it violates investor trust that the people running the company are honest and responsible.
The United States, Securities and Exchange Commisson (SEC)have strict rules and regulations against insider training. This is why, the SEC has brought a seperate civil action suit against Waksal in addition to securites fraud, consipracy and perjury. While there is stiff penalties against it, people are always able to gain information that can be useful for investment purposes, but is up to the ethics of the individual that will ultimatly decide if they will use the information the have.








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