Free Martha…

…says Tech Central Station's Jim Glassman:

The Justice Department probably would have loved to have charged Stewart with insider trading ? and, in a way, the fraud charges are a surrogate insider-trading indictment and a warning to others that tippees, not just tippers, will be prosecuted. The law, however, is murky, and it's doubtful that an investor who picks up information about a CEO's stock sale (even a CEO the investor knows) has violated the law…

Although it's clear that top officers in a company are breaching their fiduciary responsibility if, for example, they buy stock with secret knowledge that their company is about to be bought by another firm, it's far from clear why someone like Stewart should even be considered for prosecution under the insider-trading law, which stresses misappropriation -- that is, using material, nonpublic information in breach of a duty of trust or confidence. Waksal was in a position of trust; Stewart wasn't.

In case you missed it, Michael McMenamin (who Glassman cites) covered the Martha case for Reason here and here. And Brian Doherty sticks up for insider trading here.

Comments

[mojo jojo]

Koppelmann,
The point is that NO ONE involved in a situation like this has EVER beeen brought up on charges before.

[alkali]

So the government shouldn't do something that it actually didn't do? This merits a column?

Next up: why the government should not feed your fingertips to the wolverines.

[joe]

Wolverines? AAAAaaaahhhhhhh!!!!

sm, Martha's hands clearly aren't completely clean. But fraud an obstruction of justice charges? C'mon. Her actions would have warranted an administrative remedy and a single paragraph in the nooz if they had been done at any time except the middle of the Enron/Worldcom/Bush donor scandals.

[JK]

Why Martha? Over at The Nation, Doug Henwood offers this answer:

'As one young fan recently pointed out to me, it's because she severely confuses our gender codes. She invaded the traditionally male turf of big business, but her business is based on "skills that were supposed to be girly and stay-at-home." Yet while she "plays the ?ber-homemaker, she isn't charming or warm. She's cold and efficient and a little awkward. She's not marketing the warmth and the comfort of the home, she's showing how it's like a business or a machine. That's not so easy to like, and it makes her scarier, to men especially.'

http://www.thenation.com/docprint.mhtml?i=20040209&s=henwood

[GoonFood]

What I want to know is: where can I get my "Free Martha" shirts, mugs, and bumper stickers (ala "Free Kevin", if any of you remember Mitnick and his shitty government treatment. Though in all honesty he actually did some stuff to get arrested for, just not all the shit the prosecutors piled on him).

[Stephen Fetchet]

Because if you prosecute a high profile obstruction of justice case or perjury case, or for that matter insider trading case, it (1) serves as a deterrent to high ranking corporate crooks; and (2) encourages mid-level whistleblowers to speak the truth to government enforcement agents. The securities regulation system works mainly on voluntary compliance, and thieves and cheaters will get away with manipulating the markets as long as whistleblowers can be retaliated against, and as long as insider trading doesn't carry a social cost. A $10k fine doesn't hurt Martha, but a criminal prosecution sure does...

As for the theory of the case, people who know they are getting insider information by virtue of their position should not be allowed to trade on it. This includes corporate leaders, and the associates of corporate leaders - people who should know better. This theory of prosecution is not unheard of - a reporter with the Wall Street Journal was rather famously prosecuted on a similar theory in the '80s.

Unfair information advantages - gained because you are friends with or related to a true insider - tilt the markets away from the individual, and toward corporate bigshots. It allows them to manipulate their own stocks for personal gain (maximizing profits or avoiding losses), and sometimes to move the market. Martha Stewart's bad luck is that she was in the inner circle of an insider; her bad judgment was to act on information she knew was inside info.

It's not statism to insist that the markets be honest. Any Chicago Schoolers out there?

[Fred]

Is she being prosecuted under the insider-trading law?

[late for the boom]

What bothers me most about the Stewart trial is the fact that Enron, GlobalCrossing, MCI, Tyco, etc. etc. executives are still at large, the biggest offenders will never be prosecuted.

235,000 Is what Martha is accused of making from her trade, thats a drop in the bucket to what execs at Enron stole. Hell Enron took 235,000 from ONE family alone, not to mention the thousands of other employees they stole from and then put out of a job.

My only issue with the Stewart situation is, why Martha?? Because she was an easy target without any political ties?? Near as I can tell thats the case, and its bullshit. How many people did Marthas trade put out of work? How many peoples pension did Martha steal from? How many states are in economic disaray from Marthas trade?? None??

Why the hell is Enron still getting a free pass from this administration?

[joe]

Martha didn't let Cheney use her jet?

[Mike]

Fred - No, she's charged with obstruction of justice and fraud. I expanded the excerpt to clarify this.

[s.m. koppelman]

Got it. So a the DCI Group, on behalf of one of its PR clients, contracts Glassman to write an advertorial for its Tech Central Station press-release newsletter, with black-is-white, down-is-up lines like:

... it's doubtful that an investor who picks up information about a CEO's stock sale (even a CEO the investor knows) has violated the law ...

to argue that an investment firm that knows its clients are engaging in insider trading, per Fanieul's testimony about Waksal attempting to transfer stock to family members immediately to they could dump stock that he had just been advised he couldn't. And then the broker instructs his assistant to call a favored client and tell her that the insiders are dumping their stock and she should too.

And then when the client, Ms. Stewart, tells the SEC she had no contact with her broker's office and had an automatic sell order in place, she's done nothing wrong if it turns out she was lying.

The prosecution's case has little to do with insider trading, probably because of the question of violation of trust or confidence that Glassman brings up. She's up on much more clear-cut charges of fraud and obstruction of justice for lying to investigators in re: their investigations of Waksal, Bucanovic et al, who are looking at insider-trading related charges.

Go ahead and argue that insider trading laws are unjust and that insider trading should be legal, but for a supposed journal of libertarian thought, cheerleading for this kind of willful mischaracterization of the facts makes you folks look like just another pay-for-play think tank working for Waksal's and Bucanovic's lawyers.

[dude]

Martha gives money to democrats. Think that explains what's going on pretty well.

[Rick Barton]

Isn't this a case of Martha not doing any thing illegal as far as trading does, but then perhaps lying when the government pressed it's suspicions that she did in fact do something illegal trading wise?

Since she was only reacting to false allegations in the first place, the government should drop the whole thing and spend their time on real criminals and leave this woman to her crafts, culinary creations and what ever else she's into.

.

[Rick Barton]

make that: "not doing anything wrong as far as trading goes,..."

Sorry about that.

[Rob R.]

What is ridiculous about this case:

1) I can look on Yahoo and see insider trades of chief executives, directors, or anyone else requiret to file with the SEC. More and more of them are filiing insider sales declarations electronically. This is public information.

2) Statistically, insider buys are more
informative than insider sales (See Investment Intelligence from Insider Trading, by Seyhun).

So, the information she was trading on is of questionable material significance. It isn't on the same level as trading on non-public info--such as unreleased earnings announcements. Or in this case, the ruling of the FDA.

3) Was Martha under oath when she made the statements that the govt. alleges constitute "security fraud" and "obstruction?" She has no obligation to tell the govt. anything, since they were planning on charging her with insider trading anyway. The govt.is basically punishing her for exercising her rights to defend herself publicly, and the right to the assumption of innocence.

[Charles Oliver]

I never thought that I'd feel sorry for Martha Stewart, but government always has a way of surprising me.

This is almost as bad as the Barry Switzer case. (Another indivdiual I never thought I'd feel sorry for.)

[rick laredo]

Prior to her life as a TV homemaker Martha was a stockbroker. She knew the rules and she broke them.

[Rick Barton]

"Martha Stewart's bad luck is that she was in the inner circle of an insider; her bad judgment was to act on information she knew was inside info."

But she's not being charged with insider trading! The government considered that but knew it wouldn't stick because she had no culpability for that crime.

[Barbra in Canada]

So, Martha is going to jail while O.J. goes golfing and the poor Enron wives are having a garage sale. Shame on your US justice system.

[SARAH FR CALIFORNIA]

WHERE ARE ALL THE ENRON CROOKS? NOT IN JAIL .. STILL HAVING GARAGE SALES - STILL ATTENDING THEIR PARTIES - STILL LIVING IN THEIR LARGE HOMES WHILE EMPLOYEES SUFFER DUE TO THE LOSS OF THEIR PENSIONS - NONE OF MARTHA'S EMPLOYEES HAVE SUFFERED LOSSES THAT I HAVE READ OR HEARD ABOUT
I AGREE WITH BARBRA FROM CANADA - O.J. IS STILL GOLFING AND ENJOYING LIFE WITHOUT SPENDING ONE DAY IN JAIL - LOOKS TO ME LIKE MARTHA IS BEING MADE INTO A SCAPEGOAT - GOD FORBID THAT THERE SHOULD BE STRONG WOMEN IN THE BUSINESS WORLD - THAT HAVE WORKED THEIR WAY UP FROM "HUMBLE" BEGINNINGS TO BECOME ONE OF THE MOST SUCCESSFUL WOMEN IN THE WORLD - THE BUSINESS WORLD OF MEN CANNOT HANDLE IT - SHE IS A THREAT TO THEM!WHEN MEN ARE EFFICIENT/AGGRESSIVE/SHARP/CUT THROAT THEY ARE CONSIDERED TO BE BRILLIANT - BUT WHEN A STRONG WOMAN LIKE MARTHA COMES ALONG - THERE IS A NEED TO PUT A WOMAN LIKE THIS IN "HER PLACE" - BUT JAIL IS NOT THE PLACE FOR MARTHA - SHE WAS NOT CORRECT IN TRYING TO "COVER UP" THE SALE OF STOCK - BUT PRISON IS FAR TO HARSH - THERE ARE WORSE CRIMINALS THAT ARE ON PROBABTION LIVING FREE IN OUR CITIES - FREE MARTHA