Insider Trading and Martha Stewart
...es industry (1)The Act" prohibits fraudulent activities of any kind in connection with the offer, purchase or sale of securities. Insider Trading is illegal when a person trades a security while in possession of material nonpublic information in violation of a duty to withhold the information or refrain from trading" (1) "refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, non public information about the security." (2) The case against Martha Stewart in basic terms is simple. Martha Stewart is being charged with Insider Trading. Martha Stewart is being charged with this because she sold four thousand shares of stock in a drug company called ImClone. That does not sound too bad, why not. Well the problem is that Martha sold the shares on December 27th, one day before the Food and Drug Administration was to issue a decision rejecting their cancer fighting drug which was publicly announced on December 28, 2001. So how did she know to sell ? One of Martha's good friends was Samuel Waksal who was the CEO of ImClone. Waksal according to the SEC " Unlawfully tried to sell shares of ImClone worth nearly 5 million between Dec. 26 and 28, Directed his daughter Aliza to sell all of her ImClone stock on Dec. 27, Purchases 210 ImClone put option contracts through a Swiss account on Dec. 28 and Tipped a family member who sold his own ImClone stock as well as ImClone stock of another Waksal family member on Dec. 27 and 28" (3) In this news release by the SEC, it goes on to state that a partial resolution of the charges where Waksal, without admitting or denying the allegations, consented to pay more than 800,000 dollars from the unlawful sales, interest and has been barred from acting as an officer or director of a public company. (3) The questions is did Martha Stewart sell her stock because of a tip she had from possibly Waksal ? From outside looking in, it appears she did but that will need to be proved. The US Justice Department is conducting an additional investigation on whether Martha Stewart had previously lied about the sale of her stock. To make matters worse, Mr. Faneuil, an assistant to her broker who pleaded guilty to receiving pay outs in the form of time off, flights and raised commission in return for not talking, is willing to testify against Martha and others expected to face charges of insider trading.(4) So if that is not bad enough, stock was falling in her company and people were ready to sue. In October of 2002 Martha resigned from the board of the New York Stock Exchange less than four months of being there. In August of 2002, Conrad Hahn filed a lawsuit claiming losses of 75,000 dollars because of her involvement in the scandal. Mr. Hahn referred back to the 1999 company prospectus that states tha...