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Report of Firm Investigated by the SEC

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SEC Investigation: Suit Filed against Martha Stewart Insider trading laws and their enforcement came into being in the1990’s (Bhattacharya and Daouk 2006, 91). Insider trading is the act obtaining information that is not available to other stockholders in order to have an unfair advantage. It is illegal since stockholders depend on information in the audited financial statements and other publicly available information. Investment advisors and analyst pay keen attention to certain investment ratios. Investment ratios provide information that analyst use to inform their clients. These ratios help investors to decide whether they should invest in a company (Fraser and Armiston 2012). On June 2003 the SEC (2009) a reported that a suit relating to securities fraud was filed against Martha Stewart and her stockbroker Peter Bacanovic by the Securities and Exchange Commission (SEC). The SEC alleged that on December 27, 2001, a crime of insider trading was committed when the Stewart sold stock that was held in the company ImClone Systems, Inc (SEC 2009). This decision to sell was based on a tip that she received from Bacanovic who at that time was a broker with Merrill Lynch. ImClone Systems was a biopharmaceutical company which was awaiting a ruling on a cancer treatment drug from the Food and Drug Administration (FDA). A day before the announcement that the drug was being investigated Stewart sold her shares in the company. This sale was based on the actions that were anticipated from the FDA. Both Stewart and Bacanovic conspired to conceal information from the SEC and were therefore slapped with additional charges for making false statements (SEC 2009). Martha Stewart appeared to have an advantage when she sold her stock a day before the public would have knowledge about the FDA’s investigation. ReferencesFraser, L., amp. Ormiston, A. (2013). Understanding financial statements. 10th ed. USA: PearsonBhattacharya, U and Daouk, H. (2006). The World Price of Insider Trading, in Reader in International Corporate Finance – Volume 2. ed. Stijn Claessens and Luc Laeven. http://www-wds.worldbank.org/external/default/WDSContentServer/IW3P/IB/2006/08/24/000160016_20060824180845/Rendered/PDF/370950v20Reade101OFFICIAL0USE0ONLY1.pdf#page=113U.S. Securities and Exchange Commission. (2003). SEC Charges Martha Stewart, Broker Peter Bacanovic with Illegal Insider Trading. Retrieved from: http://www.sec.gov/news/press/2003-69.htm [Accessed 6 Oct 2012]