Martha Stewart Case Report

Did she commit the crime?

Martha Stewart did indeed commit the crime of insider trading when she sold her ImClone shares on December 27, 2001. She was tipped off by Peter Bacanovic who previously worked at ImClone and was a broker employed by Martha Stewart. One of his contacts in the company advised him that the Wasklas, the owners of ImClone are about to sell all their shares of the company because a drug they'd been hoping would be approved did not get the FDA approval.

That meant that their shares were about to plummet, so they wanted to get out before losing much money. Bacanovic, wanting to help Martha avoid the same fate, tipped her off of what was going to happen, even though it was illegal and immoral to do so, since the issue of the FDA denial to approve that drug was still prohibited from being told to the public and was kept under wraps.

No one was supposed to know about this until the company would launch a formal statement to the press, and then and only then were people allowed to trade their stocks of the company. Since Bacanovic tipped off Martha before that point in time, both he and her were guilty of insider trading. He had disclosed information that was unknown to the public to her, and she received the insider trading tip and followed up on it by selling her shares of the company and making a profit from it even though it was clearly forbidden. Her actions after that happened clearly show her fuilt. Bacanovic and her phoned each other several times and even had lunch together, possibly discussing what they had done. Stewart also tried to change her phone log by altering a message she had once sent that reveals her knowledge of the insider trading before the time the company's status was made public.

Bacanovic's assistant was even given perks in order to keep quiet about the case. There is no question that Martha Stewart is a wise and competent woman. She had to have known that the tip she had received was forbidden and out of the public's knowledge. She knew it was wrong to sell her shares before the announcement of ImClone was made to the public, but did it anyway. She even hired a criminal lawyer before any charges were made, and in the end of the trial asked her judge for leniency, stating that she knows that she had done something wrong. So clearly, Martha Stewart did commit insider trading.