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It’s Not the Heat — It’s the Stupidity

Who tipped the sales at ImClone? Who booked round-trip trades? Who made the dip?

Insiders. Whistle-blowers. Political mudslinging. Breakfast cereal. Really, who needs reality TV when you’ve got corporate finance?


1. Martha Stewart

It looks like Martha Stewart may be off the front pages for a while — which has to be welcome news for the besieged home and garden doyenne. This week, revelations surfaced that absolutely dwarfed Stewart’s controversial sale of 4,000 shares of ImClone stock.

According to a published report, at least six ImClone officials sold shares of the biotechnology company several weeks before the Food and Drug Administration rejected ImClone’s application for Erbitux. The FDA’s thumbs-down on Erbitux, ImClone’s much-anticipated anti-cancer drug, was made public on December 27.

The FT.com story, which cites congressional investigators, claims that John Landes, the company’s top lawyer, and Ronald Martell, vice president of marketing, dumped ImClone shares prior to the FDA announcement. In fact, the FT alleges that from December 12 to December 21, four other unnamed top executives are said to have unloaded large chunks of ImClone stock.

“It is hard to believe that everyone decided it was time to sell,” Ken Johnson, a spokesman for the House Energy and Commerce Committee, told a reporter for the FT. “We are convinced that someone was passing along inside information. Everyone but the mailroom boy was dumping ImClone stock.”

Congressional investigators are at a loss for who urged ImClone’s management to sell. As one aide privately told GW/BW: “We have no idea who this person is. All we know is, they’d have to have access to all the documents that went to company management. And they’d need keys to the metering machine. Oh yes, they’d probably have to have hand carts and dollies…you know…to help them deliver the inside information. For the life of us, we can’t figure out who this mystery person is.”

In a related story: an SEC source told GW/BW that one “low-level employee” at ImClone made millions by shorting the company’s stock.

2. Coca-Cola

Over the weekend, management at Coke announced they would begin to treat employee options as an expense. “We think the time is right for corporate America to show leadership and integrity in their financials,” Coca-Cola chief financial officer Gary Fayard told Reuters. He called the current method of not expensing options a “loophole.”

Off the record, GW/BW asked several finance chiefs if they considered their companies’ accounting treatment of options “a loophole.” Three said yes, two said no, and one apparently misunderstood the question, noting that he generally has Fruit Loops for breakfast.

3. House of Representatives

One day after the Senate unanimously passed its accounting reform bill, the House passed stringent legislation that would create stiff criminal penalties for executives who commit business fraud. Shareholder groups cheered the tough House legislation but lambasted the much softer Senate law, which they claim was watered down by big-money lobbyists.


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