Issues that Stewart and Bacanovic Faneuil missed their decisions about their stock sale
Stewart invested in Imclone upon the recommendation of her friend in spite of the company being headed by Dr. Mendelson whose reputation had come into scrutiny following the scandals at Enron. There were also indications that the Food and Drugs Agency (FDA) would not approve the cancer drug Erbitux that was poised to become one on the best performing products for the company (Jennings, 2006). Moreover, Stewart’s investment partner Dr. Waksal had placed his shares as collateral for loans. It was therefore risky for Stewart to rely on the investment. Stewart used a stockbroker who had conflicting interests with several other parties competing to benefit from premature stock sales.
Was selling the shares illegal? If it was not legal was it unethical?
The selling of the shares was legal but the conduct of the parties involved was unethical. Dr. Waksal forged the approval of Imclone general counsel to have his shares sold. According to accountant Merrill Lynch it was illegal for Dr. Waksal to transfer his shares to his daughter in order to surrender their ownership while he had already committed the same shares as collaterals for loans (Jennings, 2006). It was unethical for him to abuse the trust of his investment partner Mrs. Stewart. On the part of Stewart it was legal to sell the shares since she was acting fast to salvage her investment.
Lessons learnt
It was advisable for Stewart to ascertain the status of the company she was planning to invest in prior to making any decisions. If Stewart had sold her shares the day before she could have complied with the requirements of the Securities Exchange commission and thus she could have avoided legal prosecution and avoid making losses on her investment at the same time
Gray areas
Goldman purchased the shares to drive their prices up and thus attract their customers to buying the sane shares. The whole business strategy was dependent on the marketing growing steadily and the solvency of Goldman (Jennings, 2006). Goldman also underwrote companies that had not recorded profits in their existence. There were also inconsistencies in the management mantras adopted by the company.
Evaluation
Goldman dealt in a business that had several gray areas. The company was generally involved in stock fraud and conspiracy to steal from the public. Their dealings in the stock market were unscrupulous. Goldman was also making supernormal profits while its customers were affected by the market forces due to Goldman’s underhand dealings. When investigations were launched, the company was termed to be to playing dirty tricks, making their investment through Goldman similar to gambling.
The people affected by the Goldman gray areas
Several parties were affected by the unethical practices of Goldman. They include young people who invested in the company due to captivating management slogans, internet companies through the IPOs. Other companies included Citigroup, UBS, other individuals such as Fabrice Tourre suffered losses due to collaterized Debt Obligations (CDOs).
Factors that influenced decision
A culture of unethical practices at Goldman influenced the decisions of the employees, executives, traders and advisers. These people believed that they are in business to make profits at whatever cost even if it included altering share prices.
Was Goldman Bluffing?
Goldman was bluffing. The company management right from their slogans to their practices they were not open and truthful with their customers. Their comparison with casinos running gambling befits Goldman because they used the company set the terms of business and manipulated the processes similar to tricks applied in gambling. It is not true that Goldman never had disclosure responsibilities to those who were “qualified” or “sophisticated” investors. The company run the shareholding for its clients and thus bore the disclosure responsibilities.
Observations on settlement
It is possible that there would be no management changes at Goldman after it was bailed out by the government. The company’s managers were also its largest shareholders and therefore they were rightfully in management to guard their interests and those of other smaller shareholders. There would also be minimal material long-term impact to the firm’s client franchise since the money received would go into settling client complaints and restoring the firm’s client base. This would mean insignificant growth by the company and a possible drop in share values coupled with massive offloading of shares by the clients.
