Martha Stewart Insider Trading

Martha Stewart insider trading case is the most popular insider trading scandal the US financial industry ever witnessed. The US Securities and Exchange Commission (SEC) alleged that Martha sold 3928 shares of ImClone and avoided a loss of $45,673. The value of ImClone’s stock fell 18% after the trading by Martha Stewart. Let us see this issue in detail.

In the Martha Stewart insider trading case, the SEC accused that Samuel Waksal who was the CEO of the biotech company ImClone knew that the FDA was holding up the approval of its key cancer drug Erbitux. Waksal disposed off his ImClone’s shares from the Merrill Lynch accounts. Stewart’s broker at Merrill Lynch, Bacanovic, had allegedly informed Stewart that Waksal was disposing his shares.

This made Stewart to sell her ImClone shares before the FDA announcing its decision on the drug. The stock fell after that. Incidentally Stewart and Waksal were buddies. This is the story of the popular businesswoman caught in the act of insider trading.

There were reasonable information within the financial community that Stewart might not have been involved in the insider trading act. However, the government indicted Martha Stewart on nine counts including charges of obstruction of justice and securities fraud on June 4, 2003. She resigned from her company MSLO (Martha Stewart Living Omnimedia) as CEO and Chairman. She was also asked to step down from the board of New York Stock Exchange (NYSE) after the deal the SEC made with the Merrill Lynch broker Peter Bacanovic who was supposed to have tipped Stewart about the drug related information. However she stayed on as Chief Creative Officer of MSLO.

Following the trials in January 2004, the prosecutors showed that Bacanovic asked his assistant to inform Stewart that Waksal was selling his shares in anticipation of an adverse FDA ruling for ImClone. It was said that the FDA result was expected to affect the share prices of ImClone adversely to a great extent. Martha Stewart Insider trading trial was one of the closely watched issue and much publicized trials.

In March 2004, Martha was found guilty of many charges including conspiracy, making false statements with federal investigative officers, obstruction of agency proceedings. She was sentenced to serve a 5-month term in a correctional facility and couple of years in supervised releases including five months of home confinement. Also Stewart was asked to pay a penalty of $30,000. Waksal and Bacanovic were also convicted and sentenced to prison terms.

Martha Stewart insider trading has made the financial industry to think that the SEC can go to any length to convict a person on insider trading allegation. It also showed them that the SEC is in fact very serious about insider trading. After this incident, regulatory compliance has become more stringent and certain modifications regarding the requirements of Sarbanes Oxley Act were made. The SEC is still working on to make the insider trading rules more stringent.

We take a further look at Insider trading as we delve into insider trading law and then move on into insider trading rules where we define insider trading and layout for you types of insider trading. We finish up with an overall view of Insider trading. It seems they never learn. Recently, two huge hedge fund managers were indicted. When that happens you have to wonder just how much illegal activity occurs.