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Who tipped the sales at ImClone? Who booked round-trip trades? Who made the dip?
John Goff, CFO.com | US
July 19, 2002
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.
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.
The House bill would raise to 20 years the time behind bars for wire and mail fraud. That's twice as long as the 10-year penalty in the Senate bill passed on Monday. In addition, the House bill would create a new crime of "securities fraud" with a maximum penalty of 25 years in jail — considerably longer than the 10-year maximum prison term approved by the Senate. The House bill would also create criminal penalties for executives who retaliate against whistle-blowers. The less-stringent Senate version, by comparison, only provides tax breaks for whistle-makers.
It looks like Raytheon Co. will be the first company charged by the SEC with violating Regulation Fair Disclosure. This, according to Bloomberg.
According to a number of published reports, the two parties are negotiating a settlement that, if agreed to, would result only in a slap on the wrist for Raytheon.
Under the proposed settlement, Raytheon will not pay a fine. Without being forced to admit to the charges, Raytheon management would agree to be subject to tougher sanctions if the company does break the rule in the future.
As of yesterday, however, Raytheon management continued to deny that it had any knowledge of any SEC investigation.
Reportedly, Raytheon is accused of providing earnings estimates to Wall Street analysts before telling the rest of the public. Allegedly, two of the company executives were also caught passing notes during an earnings conference. Officials at the SEC refuse to divulge the contents of the notes, although one source close to case told GW/BW: "You'll never guess who likes who. And I mean, like likes."
2. Duke Energy, El Paso Corp.
Management at Duke Energy and El Paso Corp. reported last Friday that they received subpoenas for documents from the U.S. Attorney's Office in Houston as part of a grand jury investigation into round-trip trades. But spokesmen for Duke and El Paso told GW/BW that both companies sent subpoenas to the U.S. Attorney's Office, so that should cancel out the original subpoenas.
3. PNC Financial Services
This week, the Securities and Exchange Commission settled charges of accounting improprieties by The PNC Financial Services Group Inc. That marks the first time the commission has leveled an enforcement action against a company's misuse of special-purpose entities (SPEs).
As you know, SPEs are at the heart of Enron's troubles.
The commission said that "PNC violated Generally Accepted Accounting Principles when it transferred from its financial statements about $762 million of volatile, troubled or under-performing loans and venture capital assets sold to three special purpose entities created by a third party financial institution in the second, third, and fourth quarters of 2001, which resulted in material overstatements of earnings, among other things."
The SEC also issued an order explaining its order against PNC.