The Trial of Martha Stewart

George A. and John F. Steiner, Business, Government and Society - A Managerial Perspective, 12th Ed., 2009, McGraw-Hill. Chapter 7, case study "The trial of Martha Stewart", p.217

CHAPTER 7 - case study "The trial of Martha Stewart" question 1 (p.225)

Did Martha Stewart commit the crime of insider trading when she sold her ImClone shares on December 27, 2001?

I believe that Martha Stewart committed the crime of insider trading. In my opinion, this case study had enough information about Martha Stewart's trial. There are facts supporting that she had important and significant information about ImClone shares that wasn't available to the public at that time. First of all, she received a phone call on December 27th from her stockbroker Bacanovic telling her that he "thinks ImClone is going to start trading downward" . Bacanovic also provided important information that S. Waksal, cofounder of ImClone Systems, sold all his shares. All this trading was happening during an ImClone "blackout period" at which time any employee ImClone shares trading were prohibited pending FDA application. Waskal knew the important inside information about the letter coming the next day from the FDA that a drug his company was working on for the past decade was rejected. The information about the letter was to have been released to public the next day and it would have negatively affected the stock price. Martha Stewart knew that if Waskal was selling his stocks, it was only because the stocks were about to significantly decline in price. Martha Stewart took advantage of this insider information, listened to her broker and sold her stocks. In my opinion, Martha Stewart knew that what she did was illegal, but at the same time thought that nobody would catch her or that she would be able to cover it up with lies.