Doing the Wall Street Shuffle All the Way to Prison

James B. Stewart’s fact-filled essay on the ImClone insider trading case presents a disquieting portrait of Wall Street as a forum for greed, betrayal, and the denial of truth.

The case unfolds in late December 2001 and into 2002, just a few months after the terrorist attacks of September 11, 2001. ImClone was only of many financial scandals playing out around this time. Others, such as Enron, the huge energy giant brought down by its own fraud, were far larger in scope.

None of those other scandals, however, involved a celebrity as well known as domestic diva Martha Stewart. The media’s feeding frenzy as the net of incriminating evidence began to close around Stewart was not a pretty sight. David Letterman, for example, joked on late-night TV about Martha handling her subpoena with an oven mitt.

But of course the ImClone case was no joke. And Martha Stewart was not even the central figure in it. That would be Sam Waksal, who had founded ImClone, a biotech company, with his brother Harlan in 1994,

Sam Waksal had trained in immunology and amassed a personal fortune. Yet he had also been forced out of a position at Tufts University for fabricating lab results and fired by New York’s Mount Sinai Hospital for similar reasons.

Though ImClone raised millions of dollars from investors, by 2001 it really had only one promising product: a drug called Erbitux that appeared to offer a treatment for colorectal cancer. The drug’s prospects seemed so encouraging that Bristol-Myers Squibb had offered an astounding $2 billion for a 40 percent stake in ImClone.

That deal was premised, however, on the Food and Drug Administration giving approval for Erbitux to be sold. When word got to Sam Waksal that the drug would not be approved, he and other family members immediately tried to dump their shares before the stock price tanked.

Though Martha Stewart was not a family member, she knew Waksal socially and they shared the same stockbroker, Peter Bacanovic, who had once worked for ImClone.

Bacanovic was eager to make his career at Merrill Lynch by ingratiating himself with Stewart, the superstar client. He was eager even up to the point of encouraging and facilitating insider trading. As ImClone stock faltered, however, he ended up incriminating her — and also his naïve assistant, Douglas Faneuil.

James B. Stewart’s account of the case doesn't only examine individual ethical choices, though. As his title, Tangled Webs, suggests, he’s also interested in the social systems that support or challenge individual decisions to lie. As the financial meltdown of 2008 showed, those systems had more severe underlying problems than most people would ever have imagined.

And we are still dealing with the fallout from them.