In my opinion, Martha Stewart committed the crime of insider trading when she sold her shares of ImClone on December 27, 2001. The rationale for this opinion is the following. First of all, by the very definition inside trading is conducting manipulations on the stock market for one’s advantage with the use of confidential information. Martha Stewart obtained confidential information from her broker and used it to her advantage – she sold her shares of ImClone. This statement is based on the assumption that there was no preliminary agreement of selling shares at the price of $60.
Personally, I am convinced that if such an arrangement existed, the broker would not need to panic and call Martha straightaway on her holiday. He would not need to reach her immediately in order to get her permission to sell, which is exactly what he needed her for. If the arrangement existed, the message he asked to send to Martha would be different. It would not be so urgent but just informative, stating that he needs to sell shares because they reached the bottom line of their arrangement, and that would be it. He would not even need her permission because he would be secured by the legal framework of the existing arrangement (Engelen and Liedekerke, 2007, p. 502). Therefore, I think that the crime of insider trading took place, and Martha Stewart was guilty of it. However, I think she was just using the available opportunity provided by her broker. I would place most of responsibility on her broker for sharing confidential information.
Regarding the good judgement of prosecution in indicting Martha Stewart, the U.S. Attorney and the Securities and Exchange Commission did not only want to punish the actual crime but to make it exemplary. In this regard, the main rationale of prosecution was to demonstrate that no one can escape justice, even such popular people like Martha Stewart. Thus, her indictment was not based on the evidence of a serious crime rather on whom she was and her status in society. In other words, due to her fame and high social status, the case was going to be well-covered in media and so could be career-making for some representatives of prosecution (Engelen and Liedekerke, 2007, p. 499). From another perspective, the matter was not only about making a point in a famous case, the unconscious motivation for prosecution was also the fact that rich people like Martha Stewart usually believe that they are above the law.
Thus, although they wanted to punish the actual crime, they wanted to make it a lesson for other rich people to think twice before using favours for their personal advantage. This statement is supported by the fact that between two convicted members of the case, the primary attention was paid to Martha Stewart and not her broker. In fact, her broker was more responsible than her (Jennings, 2004, p. 45). Firstly, he was the one to share confidential information of another client. He was bound by law and business ethics of his company not to do it. He was the one who initiated negotiations about selling shares and he actually did that. Consequently, Martha got involved on his because of him and his advice. It does not mean she is entirely innocent, but she was not the one to initiate the entire crime, yet she ended up to be the centre figure of the case mainly because she was popular.
I think that her sentence was appropriate because it refuted the charges on the federal level, which were quite unconvincing form the very beginning of the process. The combination of imprisonment and fines corresponds to the nature of the crime and the status of the convicted. On the other hand, in contrast to sentences of her broker and his assistant, her sentence was more severe, and she was made more responsible for the crime as if she was the one who had plotted it and initiated the entire scheme (Jennings, 2004, p. 46). Personally, I would give the broker a more severe sentence than Martha Stewart, mainly because he was the one to share confidential information. I would also charge Faneuil for taking money from Bacanovic for his silence, and I would increase his fine. However, I think his cooperation with the prosecution was well-appreciated, and it was right that he did not go to prison.
Engelen P. and Liedekerke L. (2007). The ethics of insider trading revisited. Journal of
Business Ethics, 74 (4), 497-508.
Jennings M. (2004). The ethical lessons of the Martha Stewart case. Corporate Finance
Review, 8 (6), 41-47.