Martha Stewart

Post by **Sylvus** » July 16, 2004, 11:36 am

Sentenced to 5 months in prison. What do you think? Too harsh, too lienient?

She should know better than to break the law, but, once presented with that information, can anyone honestly say that they wouldn't have done the same and sold their stock to limit their potential losses?

Fredonia Coldheart · Post by **Fredonia Coldheart** » July 16, 2004, 11:41 am

What I find fitting is that ImClone stock closed around $80 yesterday and she dumped it around $50. If she hadn't broken the law, she would have made money.

Lynks · Post by **Lynks** » July 16, 2004, 11:43 am

If I made the amount of money she did, I don't think I would of. 5 months seems about right though, anything more would of been too much for what she did.

Thess · Post by **Thess** » July 16, 2004, 11:45 am

Martha Stewart is truely the definition of a dangerous person to have on the streets. I feel much safer knowing she will spend 5 months in prison while OJ is free.

Honestly - Yeah she committed a crime, a crime that is done by people every single day - does that justify it? No. Just them making an example out of her has been a priceless loss for her.

Chmee · Post by **Chmee** » July 16, 2004, 12:07 pm

Sylvus wrote:Sentenced to 5 months in prison. What do you think? Too harsh, too lienient?

She should know better than to break the law, but, once presented with that information, can anyone honestly say that they wouldn't have done the same and sold their stock to limit their potential losses?

Too harsh, She should have gotten off completely free in my opinion.

Selling the stock was not the problem either. She was not found guilty of insider trading (she wasn't even charged with it). She was found guilty for supposedly lieing and obstructing the investigation. Although some of the charges against her may be true, given the original investigation didn't find any illegal activity I don't think the case should have been pursued. Stewart did act foolishly in dealing with the feds. Ironically if she had not cooperated at all with them, she would probably not be facing any punishment now.

Thess · Post by **Thess** » July 16, 2004, 12:10 pm

Yeah gotta say I agree with you Chmee.

Unfortunately they choose to make an example out of her, so they had to give her some time, regardless if all that she was convicted of was lying.

Chmee · Post by **Chmee** » July 16, 2004, 12:15 pm

By the way, for probably more information than you ever wanted to know about the case here are a couple links

Professor Bainbridge's coverage (in reverse chronilogical order, so go to the bottom if you want to start at the beginning).

http://www.professorbainbridge.com/corp ... index.html

Reason's coverage

http://reason.com/martha/contents.shtml

Zaelath · Post by **Zaelath** » July 16, 2004, 12:47 pm

The actual offense was minor and she's undeniably a scape goat, but justice had to be "seen to be done", especially considering the stock market operates almost purely on "investor confidence".

People have been convicted on a lot less, and jails are full of innocent people, but I'm hardly going to lose sleep over Martha doing 5 months in a white collar holiday camp when there's people in federal ass pounding prison for life under three strike laws for "victimless crimes".

Krimson Klaw · Post by **Krimson Klaw** » July 16, 2004, 12:53 pm

Here here.

archeiron · Post by **archeiron** » July 16, 2004, 1:00 pm

Zaelath wrote:The actual offense was minor and she's undeniably a scape goat, but justice had to be "seen to be done", especially considering the stock market operates almost purely on "investor confidence".

People have been convicted on a lot less, and jails are full of innocent people, but I'm hardly going to lose sleep over Martha doing 5 months in a white collar holiday camp when there's people in federal ass pounding prison for life under three strike laws for "victimless crimes".

Your so called "victimless crimes" hurt baby Jesus, and that should be enough!

Oh yes, on a more serious note, I think that society would have been better served to make her do three metric fucktons of community service rather than having 5 months at summer camp.

Winnow · Post by **Winnow** » July 16, 2004, 1:05 pm

5 months in minimum security or one night of being someone's bitch in a maximum security prison.

Aslanna · Post by **Aslanna** » July 16, 2004, 1:39 pm

She should have gotten the chair!

Tyek · Post by **Tyek** » July 16, 2004, 4:22 pm

People have been convicted on a lot less, and jails are full of innocent people, but I'm hardly going to lose sleep over Martha doing 5 months in a white collar holiday camp when there's people in federal ass pounding prison for life under three strike laws for "victimless crimes".

Or they could just not commit a crime at all. If they do a crime three times do you not think there would be a 4th, 5th, 10th time without some real punative measure?

Jice Virago · Post by **Jice Virago** » July 16, 2004, 4:26 pm

The sentences for insider trading should be a lot stiffer, but......

.... she never should have gotten convicted on what she was.

Chmee · Post by **Chmee** » July 16, 2004, 4:26 pm

Zaelath wrote:The actual offense was minor and she's undeniably a scape goat, but justice had to be "seen to be done", especially considering the stock market operates almost purely on "investor confidence".

I doubt it was an investor confidence issue. Probably more of prosecutors looking to make a name for themselves by taking down a high profile target.

People have been convicted on a lot less, and jails are full of innocent people, but I'm hardly going to lose sleep over Martha doing 5 months in a white collar holiday camp when there's people in federal ass pounding prison for life under three strike laws for "victimless crimes".

There certainly are people that have gotten more of a shaft from the government than she has.

VariaVespasa · Post by **VariaVespasa** » July 16, 2004, 6:52 pm

Why on earth would you give her the chair? There's no way it could possibly match the rest of her decor...

*Hugs*
Varia

Legenae · Post by **Legenae** » July 16, 2004, 9:18 pm

I definitely agree with you, Chmee. They couldn't find any evidence of her actually participating in insider trading (whether she did or not, they just couldn't find any proof). So I'd have to say that the punishment is too harsh.

Zaelath · Post by **Zaelath** » July 16, 2004, 11:51 pm

Tyek wrote:
People have been convicted on a lot less, and jails are full of innocent people, but I'm hardly going to lose sleep over Martha doing 5 months in a white collar holiday camp when there's people in federal ass pounding prison for life under three strike laws for "victimless crimes".
Or they could just not commit a crime at all. If they do a crime three times do you not think there would be a 4th, 5th, 10th time without some real punative measure?

As far as I'm concerned smoking a joint is no crime at all, regardless, what possible justification do you make for getting someone as dangerous to the community as a pot smoker off the streets for life?

Forthe · Post by **Forthe** » July 17, 2004, 2:45 am

Insider trading is stealing. I'm sure most of you would not be so forgiving if she directly stole the same amount of money from the people that bought her stocks.

Rekaar. · Post by **Rekaar.** » July 17, 2004, 4:17 am

She was not found guilty of insider trading (she wasn't even charged with it)

Aslanna · Post by **Aslanna** » July 17, 2004, 6:10 am

Well considering she got the minimum sentence for whatever she was charged with.. I doubt it was too excessive.

Don't do the crime if you can't do the time!

kyoukan · Post by **kyoukan** » July 17, 2004, 9:37 am

well they only didn't charge her with insider trading because they didn't think they could prove it in a court of law. in my opinion, if the CEO of the company you have shares in calls you on the fucking telephone and tells you to sell your shares before tomorrow because they are going to crash and you sell those shares, that is insider trading. what she did basically is rip the people off who bought them. whoever bought them might not have been "little people" as she so eloquently put it yesterday and it might have been rich shareholders or a holding company, but nevertheless she used her position as an insider to the company to benefit while letting other people eat the loss.

she won't spend a day in prison anyway and her mega corporation is worth the same now as it was before, so no the punishment isn't excessive. rich famous people don't go to jail in the US unless you are james brown.

Chmee · Post by **Chmee** » July 17, 2004, 11:17 am

It wasn't just a matter of not being able to prove insider trading. But what she did, didn't meet the criteria of insider trading. There is more necessary than just receiving the information.

From the Professor Bainbridge link I supplied earlier.

The SEC’s charges actually have very little to do with insider trading. Suppose Jane is the CEO of a big mining corporation. Jane learns the company has struck gold. Before the discovery is announced, Jane buys some more stock. That is classic insider trading. Now suppose Jane tells her friend Don the good news. Don buys stock, also pre-announcement. That is known as tipping. According to the U.S. Supreme Court, the tip will be illegal if Jane got a personal benefit from making the tip and Don knew (or should have known) that Jane’s tip violated her fiduciary duty to the company. A third kind of insider trading is called misappropriation. Suppose Jane’s company plans a hostile takeover of a second company. She tells her attorney Anne about the plan. Anne then buys stock in the target company. Anne has committed illegal insider trading based on misappropriated information. If Anne tips her friend Dave, that would be illegal too. The charges against Stewart don’t look anything like these examples. It is as though Jane’s broker thought her trade was unusual and told another client about it.

Martha Stewart pretty clearly didn’t know about the FDA’s Erbitux action. In fact, according to the SEC itself, after selling her ImClone stock, Stewart called Waksal and left the following message: “Martha Stewart—something is going on with ImClone and she wants to know what….” Although the SEC’s complaint makes much of the Stewart-Waksal friendship, the SEC nowhere alleges that Stewart had any advance knowledge of the problem with Erbitux.

If you want a more detailed discussion of insider trading law and its history, go to this site ...

http://papers.ssrn.com/sol3/papers.cfm? ... _id=261277

and download the document. Fair warning, its pretty long.

Forthe · Post by **Forthe** » July 17, 2004, 11:19 am

Rekaar. wrote:
She was not found guilty of insider trading (she wasn't even charged with it)

Al Capone wasn't found guilty of murder, extortion, either. Do You doubt those crimes were the reason he was charged with tax evasion?

Krimson Klaw · Post by **Krimson Klaw** » July 17, 2004, 12:12 pm

Damn Forthe, that was a hole in one.

archeiron · Post by **archeiron** » July 17, 2004, 12:34 pm

Forthe wrote:
Rekaar. wrote:
She was not found guilty of insider trading (she wasn't even charged with it)
Al Capone wasn't found guilty of murder, extortion, either. Do You doubt those crimes were the reason he was charged with tax evasion?

Textbook hyperbolic allegory, thank you Forthe. You are trying to use an emotional exploit, I am petitioning yo'ass now!

Chmee · Post by **Chmee** » July 17, 2004, 1:22 pm

Forthe wrote:
Rekaar. wrote:
She was not found guilty of insider trading (she wasn't even charged with it)
Al Capone wasn't found guilty of murder, extortion, either. Do You doubt those crimes were the reason he was charged with tax evasion?

Not the same situation in my opinion. The police had reason to believe that Al Capone was guilty of those things, but never had any proof to convict him with. When the investigation of Stewart started, given that Waksal and Stewart knew each other I am sure the authorities wanted to know if insider trading had occurred. If Waksal had indeed tipped off Stewart, and had recieved a personal benefit from doing so, then there would have been grounds for insider trading charges. But as the investigation progressed, there wasn't any evidence that this occurred. There is even evidence that points toward it not having occurred.

Forthe · Post by **Forthe** » July 17, 2004, 2:41 pm

Chmee wrote:
Forthe wrote:
Rekaar. wrote:
She was not found guilty of insider trading (she wasn't even charged with it)
Al Capone wasn't found guilty of murder, extortion, either. Do You doubt those crimes were the reason he was charged with tax evasion?
Not the same situation in my opinion. The police had reason to believe that Al Capone was guilty of those things, but never had any proof to convict him with. When the investigation of Stewart started, given that Waksal and Stewart knew each other I am sure the authorities wanted to know if insider trading had occurred. If Waksal had indeed tipped off Stewart, and had recieved a personal benefit from doing so, then there would have been grounds for insider trading charges. But as the investigation progressed, there wasn't any evidence that this occurred. There is even evidence that points toward it not having occurred.

If given the benefit of the doubt that she was innocent then she shouldn't have interferred with the investigation.

Without the benefit of the doubt why would someone innocent interfere?

Tyek · Post by **Tyek** » July 17, 2004, 3:31 pm

Tyek wrote:
Quote:
People have been convicted on a lot less, and jails are full of innocent people, but I'm hardly going to lose sleep over Martha doing 5 months in a white collar holiday camp when there's people in federal ass pounding prison for life under three strike laws for "victimless crimes".

Or they could just not commit a crime at all. If they do a crime three times do you not think there would be a 4th, 5th, 10th time without some real punative measure?

As far as I'm concerned smoking a joint is no crime at all, regardless, what possible justification do you make for getting someone as dangerous to the community as a pot smoker off the streets for life?

California is supposed to have the harshest penalty in the country regarding 3 strikes. It states that if a person commits 2 Violent or serious felonies then a third strike of smoking Marijuna would trigger the jail time.

I don't think it is asking too much for most of the population to refrain from commiting 2 serious or violent felonies, but if they did, then smoke the mary jane in your house.

Don't get me wrong I am all for a good joint, but I could find no one who has gone to jail for life for getting caught smoking a joint 3 times. If it has happened then I will stand corrected and agree with you.

Forthe · Post by **Forthe** » July 17, 2004, 11:44 pm

Insider Trading

"Insider trading" is a term that most investors have heard and usually associate with illegal conduct. But the term actually includes both legal and illegal conduct. The legal version is when corporate insiders—officers, directors, and employees—buy and sell stock in their own companies. When corporate insiders trade in their own securities, they must report their trades to the SEC. For more information about this type of insider trading and the reports insiders must file, please read "Forms 3, 4, 5" in our Fast Answers databank.

Illegal insider trading 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, nonpublic information about the security. Insider trading violations may also include "tipping" such information, securities trading by the person "tipped," and securities trading by those who misappropriate such information.

Examples of insider trading cases that have been brought by the SEC are cases against:

Corporate officers, directors, and employees who traded the corporation's securities after learning of significant, confidential corporate developments;

Friends, business associates, family members, and other "tippees" of such officers, directors, and employees, who traded the securities after receiving such information;

Employees of law, banking, brokerage and printing firms who were given such information to provide services to the corporation whose securities they traded;

Government employees who learned of such information because of their employment by the government; and

Other persons who misappropriated, and took advantage of, confidential information from their employers.
Because insider trading undermines investor confidence in the fairness and integrity of the securities markets, the SEC has treated the detection and prosecution of insider trading violations as one of its enforcement priorities.

The SEC adopted new Rules 10b5-1 and 10b5-2 to resolve two insider trading issues where the courts have disagreed. Rule 10b5-1 provides that a person trades on the basis of material nonpublic information if a trader is "aware" of the material nonpublic information when making the purchase or sale. The rule also sets forth several affirmative defenses or exceptions to liability. The rule permits persons to trade in certain specified circumstances where it is clear that the information they are aware of is not a factor in the decision to trade, such as pursuant to a pre-existing plan, contract, or instruction that was made in good faith.

Rule 10b5-2 clarifies how the misappropriation theory applies to certain non-business relationships. This rule provides that a person receiving confidential information under circumstances specified in the rule would owe a duty of trust or confidence and thus could be liable under the misappropriation theory.

For more information about insider trading, please read Insider Trading—A U.S. Perspective, a speech by staff of the SEC.

http://www.sec.gov/answers/insider.htm

Chmee · Post by **Chmee** » July 20, 2004, 10:38 am

Forthe wrote: If given the benefit of the doubt that she was innocent then she shouldn't have interferred with the investigation.

Without the benefit of the doubt why would someone innocent interfere?

Impossible to say for sure. At a guess, she probably just panicked. Silly, considering her resources. She should have just immediately contacted her lawyer and not said or did anything without consulting him. But people do stupid things sometimes.

Chmee · Post by **Chmee** » July 20, 2004, 10:53 am

Forthe wrote:
Insider Trading

"Insider trading" is a term that most investors have heard and usually associate with illegal conduct. But the term actually includes both legal and illegal conduct. The legal version is when corporate insiders—officers, directors, and employees—buy and sell stock in their own companies. When corporate insiders trade in their own securities, they must report their trades to the SEC. For more information about this type of insider trading and the reports insiders must file, please read "Forms 3, 4, 5" in our Fast Answers databank.

Illegal insider trading 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, nonpublic information about the security. Insider trading violations may also include "tipping" such information, securities trading by the person "tipped," and securities trading by those who misappropriate such information.

Examples of insider trading cases that have been brought by the SEC are cases against:

Corporate officers, directors, and employees who traded the corporation's securities after learning of significant, confidential corporate developments;

Friends, business associates, family members, and other "tippees" of such officers, directors, and employees, who traded the securities after receiving such information;

Employees of law, banking, brokerage and printing firms who were given such information to provide services to the corporation whose securities they traded;

Government employees who learned of such information because of their employment by the government; and

Other persons who misappropriated, and took advantage of, confidential information from their employers.
Because insider trading undermines investor confidence in the fairness and integrity of the securities markets, the SEC has treated the detection and prosecution of insider trading violations as one of its enforcement priorities.

The SEC adopted new Rules 10b5-1 and 10b5-2 to resolve two insider trading issues where the courts have disagreed. Rule 10b5-1 provides that a person trades on the basis of material nonpublic information if a trader is "aware" of the material nonpublic information when making the purchase or sale. The rule also sets forth several affirmative defenses or exceptions to liability. The rule permits persons to trade in certain specified circumstances where it is clear that the information they are aware of is not a factor in the decision to trade, such as pursuant to a pre-existing plan, contract, or instruction that was made in good faith.

Rule 10b5-2 clarifies how the misappropriation theory applies to certain non-business relationships. This rule provides that a person receiving confidential information under circumstances specified in the rule would owe a duty of trust or confidence and thus could be liable under the misappropriation theory.

For more information about insider trading, please read Insider Trading—A U.S. Perspective, a speech by staff of the SEC.
http://www.sec.gov/answers/insider.htm

Even given this, I still see haven't seen any credible evidence showing Stewart to possess the material nonpublic information (which in this case would be the FDA rejecting the drug).

Also, it will be interesting to see how 105b-1 will hold up in the long run. The SEC's statement about it being to resolve cases where the court has disagreed is somewhat amusing since it is basically trying to revive what the courts have told them they can't do.

http://www.professorbainbridge.com/2004 ... ken_l.html

Lay's defense raises a technical, but highly important issue in the law of insider trading; namely, can one be held liable for insider trading where the government merely shows that one possessed material nonpublic information at the time of the trade in question or must the government show that one used that information (i.e., that one traded on the basis of that information)? [The following discussion is excerpted from my book Securities Law: Insider Trading.]

The SEC long has argued that trading while in knowing possession of material nonpublic information satisfies Rule 10b-5, the regulatory provision governing most insider trading (including that of Ken Lay). The difficulties with the SEC’s position, however, are readily apparent to any securities lawyer. Most importantly, a mere possession test is inconsistent with Rule 10b-5's scienter requirement, which requires a showing that the defendant had intent to defraud (or, at least, acted recklessly).

In SEC v. Adler, 137 F.3d 1325 (11th Cir.1998), the Eleventh Circuit rejected the SEC’s position in favor of a use standard. Under Adler, "when an insider trades while in possession of material nonpublic information, a strong inference arises that such information was used by the insider in trading. The insider can attempt to rebut the inference by adducing evidence that there was no causal connection between the information and the trade—i.e., that the information was not used." Although defendant Pegram apparently possessed material nonpublic information at the time he traded, he introduced strong evidence that he had a plan to sell company stock and that that plan predated his acquisition of the information in question. If proven at trial, evidence of such a pre existing plan would rebut the inference of use and justify an acquittal on grounds that he lacked the requisite scienter.

The Ninth Circuit subsequently agreed with Adler that proof of use, not mere possession, is required. The Ninth Circuit further held that in criminal cases no presumption of use should be drawn from the fact of possession—the government must affirmatively prove use of nonpublic information. United States v. Smith, 155 F.3d 1051 (9th Cir.1998).

In 2000, the SEC tried to resolve this issue by adopting Rule 10b5-1, which states that Rule 10b-5's prohibition of insider trading is violated whenever someone trades "on the basis of" material nonpublic information. Because one is deemed, subject to certain narrow exceptions, to have traded "on the basis of" material nonpublic information if one was aware of such information at the time of the trade, however, Rule 10b5-1 rejects the Adler/Smith position. In its effect, if not in its precise language, Rule 10b5-1 tries to resurrect the mere possession test.

Did the SEC have authority to adopt Rule 10b5-1 in the face of contrary judicial holdings? The SEC cannot adopt rules that go beyond the scope of the statutes authorizing them. Admittedly, there is some evidence that supports the SEC’s position. In adopting the Insider Trading Sanctions Act of 1984, for example, Congress imposed treble money civil fines on those who illegally trade "while in possession" of material nonpublic information.

The bulk of the evidence, however, raises serious doubts as to the validity of Rule 10b5-1. The Supreme Court has consistently held that Section 10(b) of the Securities Exchange Act, which provides the authority under which Rule 10b-5 was adopted, prohibits only fraud and manipulation. In turn, as we have seen, fraud requires proof that the defendant intended to deceive (i.e., scienter). Indeed, the Supreme Court explained in Dirks that "t is not enough that an insider's conduct results in harm to investors; rather a violation [of Rule 10b-5] may be found only where there is 'intentional or willful conduct designed to deceive or defraud investors.' " Dirks v. SEC, 463 U.S. at 646, 663 n. 23, (1983). Yet, as the Ninth Circuit pointed out in Smith, “a knowing-possession standard would … go a long way toward making insider trading a strict liability crime.” Second, as the Ninth Circuit also noted, “the Supreme Court has consistently suggested, albeit in dictum, that Rule 10b-5 requires that the government prove causation in insider trading prosecutions.” In other words, the government must prove that the defendant used the inside information in making the relevant trading decisions.

Bottom line? I’m guessing that the Justice Department is loath to rely on Rule 10b5-1. Instead, the Justice Department seems to assume that Smith is the law of the land. If Ken Lay had a plausible argument that his trades were intended to satisfy margin calls, the government would have a very difficult time proving beyond a reasonable doubt that he used inside information in connection with the trades. Lay would be in the position of a forced seller, who would have traded anyway. In contrast, the SEC’s complaint makes clear that it is relying on Rule 10b5-1 and going forward on a mere possession basis. If Lay defends himself as vigorously as he claims, perhaps the Lay case will finally give us a definitive ruling as to the validity of the Rule.

VeeshanVault

Martha Stewart

Martha Stewart

Re: Martha Stewart