Bareley Managing - Martha Stewart's Recipe for Disaster

by Markus Nolte

Martha's stock-trading scandal shows what can go wrong when a company's intellectual assets get too concentrated.

Martha Stewart's investing acumen makes me look like George Soros. As the entire world now knows, the chief, cook, and bottle collector of Martha Stewart Living Omnimedia (MSO) sold 3,928 shares of ImClone (IMCL) stock on Dec. 27, pocketing $227,824, a day before the company announced that the government had denied approval for its drug Erbitux. ImClone stock promptly dropped about $12 a share. It has since fallen much lower, but on Dec. 31, Stewart could have sold her stock and collected $180,000 without anyone batting a legal eyelash. That's just 48 grand less than she got.

As it is, the aroma from Stewart's fortuitously timed trade resembles something that comes from a room other than the kitchen. That's because she is a good friend of the then-CEO of ImClone, Sam Waksal, who has since been charged with insider trading. On July 1, MSO closed at $11.50, down from its high for the year, $20.01. According to the proxy statement, Stewart owns almost 31 million shares. If we can ascribe all of the stock's loss to her malodorous misadventures, Stewart's $48,000 gain has already cost her $261,371,672 (plus legal fees).

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I explain difficult concepts in simple ways. For free, and for money. Clue procurement and bullshit detection.


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