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The Trial of Martha Stewart, Case Study Example

Pages: 3

Words: 938

Case Study

Did Martha Stewart commit the crime of insider trading when she sold her ImClone shares on December 27, 2001?

Insider trading means to act on knowledge that is not yet publicly available. Even if Martha Stewart didn’t know that Waksals were engaging in insider trading, she could tell that the information given to her by Bacanovic was not publicly available to other investors. She also knew that the news of Waksals trading came from Merrill Lynch that executed the trade and not from an independent news source. If Waksals’trade had become widespread news, the market would have followed the suit and some smart people would have figured out the likely FDA news. But the fact that ImClone’s shares were still unaffected simply meant that FDA news still had not been made and Waksals’ trade was still unknown to the general public except Douglas Faneuil who actually executed it. Thus, Marta Stewart did commit the crimes of insider trading when she sold her ImClone shares on December 27, 2001.

Did the U.S. Attorneys and the Securities and Exchange Commission use good judgment in indicting Martha Stewart? Do you believe that her indictment was based on evidence of a serious crime, or do you believe that prosecutors consciously or unconsciously had additional motives for pursuing the case?

The U.S. Attorneys and the Securities and Exchange Commission did use good judgment in indicting Martha Stewart and the indictment was based on evidence of a serious crime. First of all, the investigation started after Merrill Lynch contacted SEC on its suspicions of insider trading at ImClone. Douglas Faneuil who executed trades on Waksals’ behalf also executed trade for Martha Stewart not long after and before the FDA announcement by ImClone. Of course, it could have been just a coincidence if Martha Stewart and Peter Bacanovic did have an agreement to sell the share below $60 but an expert from the U.S. Secret Service, Larry Stewart confirmed that “@60” entry was entered by a different pen than other entries and probably later as alleged by the prosecutor. This makes it more likely than not that the entry was put in to obstruct investigation. In addition, Martha Stewart spoke with Douglas Faneuil but she denied doing so and claimed that she spoke with Peter Bacanovic on 27th December and not Douglas Faneuil. Martha Stewart’s attempt to change her secretary’s phone log was also a red flag though she did ultimately reverse her action.

Do you agree with the jury that she was guilty beyond a reasonable doubt of the conspiracy and obstruction of justice charges?

The jury was right in awarding the guilty decision but I don’t agree with the jury that Martha Stewart was guilty beyond a reasonable doubt. The jury said that Marta Stewart’s secretary wept which means there was something wrong. It was nothing more than an assumption on jury’s part because Marta Stewart’s secretary might have become emotional because she was being forced to testify at a case so crucial to her boss’ future and it is also possible that she could not handle the pressure. The jury gave a lot of weight to Douglas Faneuil’s testimony but Faneuil changed his position during the case. It is possible that he did so after weighing his self-interests as he might have realized that the prosecution had a greater chance of success. Because Mr. Faneuil changed his story, one could not give him the same credibility as he would have by keeping his account of events consistent throughout the case.

Was her punishment, including both imprisonment and fines, appropriate? Were the punishments of Peter Bacanovic and Douglas Faneuil appropriate?

There may be some who won’t agree with the jury’s decision but Martha Stewart did receive appropriate punishment including fines and imprisonment. The judge had the option for far more severe sentence but she went fora less severe one and rightly so. Martha Stewart had already paid a huge price due to a decline in Martha Stewart Living Omnimedia’s share price that far exceeded the gain made through sales of ImClone’sstock. Thus, hersentence of 5 months prison time and 5 months jail confinement as well asa monetary fine of $30,000 seemed to be a just decision. The judge was wise to abstain from a harsher sentencing because she realized that Marta Stewart had also paid the price for her crime in other ways including a significant loss in net worth and a blow to her reputation.

Peter Bacanovic received almost the same sentencing as Martha Stewart and in my opinion, he was let go lightly. He should have received a harsher sentencing than Marta Stewart because he was the one who pulled the trigger for the crime by forcing Douglas Faneuil to call Marta. In doing so, Peter Bacanovic also ignored his employer’s policy of not disclosing confidential data about client’s activities (in this case Waksals). Peter Bacanovic was Douglas Faneuil’s senior and used his position to unduly influence his junior colleague. In addition, it was he who entered “@60” to obstruct justice. In the end, he actually received a little lighter sentence than Martha Stewart due to a lower fine though he should have gotten longer prison sentence well as monetary fine.

Douglas Faneuil was also let go lightly and just paid a small fine of $2,000. Douglas Faneuil suspected Waksals of engaging in insider trading and did nothing. Instead, he yielded to his boss’ pressure and informed Martha Stewart of Waksals’ activities, breaking his employer’s policy in the process, too. He benefitted for cooperation with the government but still his punishment was too low even though he was a major figure in the scandal alongside Martha Stewart and Peter Bacanovic.

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