Martha Stewart: Guilty Of Insider Trading

On December 27th, 2001 Martha Stewart was contacted with some information that was clearly not public knowledge at the time. Her broker, Peter Bacanovic, had attempted to contact Stewart to inform her that ImClone shares were going downward and the Waksals were selling all their shares. Under the Client Information Privacy Policy of Merrill Lynch it clearly states that they “do not release client information, except upon a client’s authorization”. Bacanovic had ignored the policy and had chosen to inform Stewart of the Waksals selling of shares. From the beginning of this investigation, all parties involved claimed that the only reason for Stewart selling her shares was because of an agreement between her and Bacanovic that if the stock price
The SEC defines insider trading as illegal to either buy or sell shares, equity shares or any class of equity shares, in any public company if you are in possession of material non-public information. It’s safe to say that Waksal was in possession of material non-public information, where the question lies is whether or not Stewart was. When approached with the information that the founder of ImClone was selling all their shares, it can mean one thing and one thing only – shit’s about to hit the fan and you want out as quickly as possible. Had Stewart not have been informed about the Waksal family selling their ImClone shares through Bacanovic, she probably would not have made a rash decision and instructed Faneuil to sell all her shares in the company. There is no doubt whatsoever that Waksal was in possession of “material insider information”, it was Bacanovics relay of information to Stewart that put her in risk. She was not aware of all the information regarding the sudden sell of ImClone shares by the Waksals. As a result of not being fully informed of the situation she was unable to make an informed calculated decision. Stewart was not aware why Sam Waksal was selling, and she was unaware of the FDA drug rejection on Erbitux that was about to take place. More
In the wake of corporate scandals like ENRON and Arthur Anderson “the government was prosecuting a celebrity for a minor infraction to show it was tough on business crime”. The government may very well have wanted to show that business crime was intolerable, but no means was it their sole reason for pursuing the indictment. Based on the facts of December 27th and there after it was plain to see that there had been foul play. There was far too many incriminating evidence against Stewart and Bacanovic to say that the SEC and U.S. Attorneys used poor judgment and had additional motives. If they had been no crime committed then Bacanovic wouldn’t have, basically, paid-off Faneuil for corroborating with the story of a stop-loss agreement of selling the shares at $60. Stewart would not have contemplated altering the phone log entry on December 27th regarding Bacanovic’s call about the ImClone shares. If both Stewarts and Bacanovics actions had been entirely innocent and kosher, they would have cooperated with government investigators in late June, 2002 instead of pleading the Fifth Amendment against self-incrimination. That is not the behavior of innocent individuals. Instead it’s the behavior of those that are afraid of getting caught and losing grip of their