In the case of ImClone, Sam Waksal sold knowing about the termites. The buyers are victims of his panic, and the SEC should side with them (and sellers influenced by Waksal) as a matter of policy. It should seek restitution from the perpetrator at civil law.
Civil complaint has two benefits: The loss is forced back on the person who tried to avoid it, returning some compensation to the hands of the defrauded plaintiffs, and it is far easier to achieve a judgment at civil law.
In criminal law, the standard for decision is evidence of crime "beyond a reasonable doubt," and doubt is easy here. In a civil complaint, the finding need only be based on a "preponderance" of evidence. Such a policy will scare the living daylights out future Waksals, Ken Lays, and Jeff Skillings. Caveat emptor is well and good, but it's only half the story. Caveat vendor is equally necessary to dissuade fraud and allow equal recourse so that everyone is responsible for building the trust that is the fundamental basis of free trade.
Samuel H. Coppock
Chandler AZ
Thanks for taking the time to put together the story. I have never been a fan of Martha Stewart, but shame on the media and the prosecutors for putting her through this.
Steve Johnson
Troy, MI
Michael McMenamin replies: The editors chose the title, but I happen to like "St. Martha." My memory from a Catholic childhood is that, like heroes, most saints did not volunteer to be martyrs. Neither did Stewart. But saints had the courage to stand up for their beliefs. So did Stewart.
No American should ever be indicted for the "crime" of publicly declaring her innocence of charges leaked by anonymous government sources. That's what James Comey, the U.S. attorney for the Southern District of New York, did to Stewart, and it's wrong.
Trading on asymmetric information, whether or not it's "unfair," is not synonymous with fraud. Steven Mason may really believe Stewart received "material, nonpublic information from her broker," but no competent securities lawyer would agree. ImClone stock had already tanked by the time Stewart's broker called her, and the fact that he (improperly) told her Sam Waksal and his daughter were among the selling horde is not "material" by any legal precedent.
As for the claim that Stewart "should have known better," give me a break. Insider trading is the epitome of an undefined, unconstitutionally vague offense. It's only a valid target of the law in a situation where there's actual fraud involving someone to whom the trader had a fiduciary obligation, such as the one Sam Waksal had to his shareholders not to trade on inside information.
Martha Stewart had no fiduciary obligation to anyone, and no one had ever been charged before with insider trading because his broker tipped him to another customer's sales. How was Stewart to know she was going to be a test case for the newest iteration of the undefined crime of insider trading?
Martha Stewart does not belong in the same sentence with the likes of Enron's Ken Lay and Jeff Skilling. Unlike Stewart, they betrayed their fiduciary obligations to employees, retirees, and shareholders. Those were cases of accounting fraud. Libertarians don't need to offer "better regulatory policy" to take care of that.
Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time.
nfl jerseys|11.12.10 @ 9:22PM|#
xtgtgh