Insider Trading - Report Example

1) Insider Trading is considered as a crime wherein anyone, based on the priority knowledge, can buy or sell the shares of any firm. It is also important to note that there are generally two different types of insider trading including legal as well as illegal insider trading. The illegal insider trading is based on the material information that is not available to the public and can provide an investor an advantage over other investors to gain certain monetary benefits through buying and trading of that particular security. In case of Martha Stewart and the case of ImClone Systems Inc, it was established that the Martha was able to avoid the loss after getting non-publically disclosed information from Peter Bacanovic- a Broker at Merrill Lynch. Subsequent investigations also indicated that the Martha lied to the investigators of Securities and Exchange Commission regarding this and she was able to avoid the loss of more than $300,000/- According to Fair Disclosure requirements of the SEC, every company is entitled to make public any non-public information that it discloses to any person whereas Insider Trading Act 1984 also imposes penalties on the insider trading and consider it an illegal activity to trade based on the information that is not available to other public. Based on the above facts, it is established that the Martha Stewart Committed the crime of Insider Trading when she sold the shares of ImClone Systems Inc on 27th December 2001 as it violated the rules and regulations as prescribed in above mentioned laws. 2) The case of Martha Stewart is critical in the sense that it attracted a lot of attention from the Media and she was grilled by the Media for her supposed role in the insider trading episode. Though the nature of evidence will indicate that the Martha supposedly acted on the advice of her Broker who tipped her that the CEO of ImClone Systems Inc is going to sell his stocks following the probability that FDA may announce its decision against the ImClone Systems Inc. The available evidence is however, contradictory also as various persons who were testified in the court of Law provided slightly different accounts of the overall nature and involvement of the Martha in this whole episode. It is also critical to note that since Martha Stewart was one of the most important women in US and as such there was a public and Media hype behind her case. This may have prompted the Prosecutors to prosecute the case in a manner that can also offer them an opportunity to shot to the fame. Secondly, it seems that the Prosecutors have failed to properly consider the role of the CEO of ImClone Systems Inc as he was probably the main person who started this chain of selling the shares of the firm following the FDA decision. It can therefore be argued that there may be some other motives of the prosecutors in pursuing the case of Martha Stewart as the crime committed by her was not so serious. 3) Martha Stewart was proved guilty on nine counts and was sentenced accordingly. Two of the charges were obstruction of justices as well as the criminal conspiracy as she was involved in the case of selling the shares of the ImClone Systems Inc based on insider trading. What is also however, critical to note that there were arguments which indicated the subtle points of the case and provided alternative views? First of all, there was no victim of this case i.e. apparently, Martha does not harm anyone and no one was affected by the insider trading conducted by Martha. Secondly, the case history indicate that the she has already informed her broker for the stop loss order at a price of $60 and as such she has executed the trade based on earlier instructions and as such there may be no indication of whether she acted on the tip or not. The Martha Stewart case was also labeled as the Corporate Crime which is relatively more unjustifiable given the overall nature of the corporate crimes and their impact on the economy as in the case of Enron. Secondly, the number of shares that she sold was only just over 3000 which may not indicate the overall impact of her act on the economy as a general. Thus the jury’s decision that she was proved guilty beyond any doubt may be dubious as the nature and evidence of the act undertaken by Martha suggest otherwise. 4) The overall nature of the sentence of Martha indicate that she was jailed for five months and was put under two years of supervised release along with six months of electronic monitoring. She and other two accused were also required to pay fine to the authorities. This sentence, given the overall nature of the case as well as lose evidence may not be appropriate and there may be an element of biasness in the decision. Since there were no potential victims neither there was an element of harm involved in this case therefore the overall sentence may look relatively more sever and not appropriate. Similarly, the sentence of other two individuals may not have been appropriate too as the same may be linked with the case of Martha in which Jury seems to have acted in haste and without considering all the aspects of the case. As discussed above that the Prosecutors may have some other motives in pursuing the case of Martha therefore the overall nature and severity of the sentence may also be the result of the intentions of the Prosecutors. She was charged on the count of obstructing the justice however, later on Martha Stewart went on in a settlement thus indicating that the overall nature of the case and sentence may not be appropriate. It is also important to understand that there are various penalties prescribed in the rules and regulations for insider trading and as such Martha could have been penalized rather than being sent to Prison. Read More