Insider Trading Crime and Sentencing

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Table of Contents

Martha Stewart’s Crime
Martha Stewart’s Act as White-Collar Crime
Martha Stewart’s Sentence
References

Martha Stewart is the home-decorating entrepreneur, known to many. On December 27, 2001, Faneuil informed his boss Mr. Bacanovic that the ImClone Systems CEO was selling his shares in the company. On learning this information, Stewart sold all her shares in the company earning her a whopping $228,000.

Martha Stewart’s Crime

The charges leveled against Stewart regard “insider trading.” This is wherein a person sells or buys shares by using the tip or non-public information offered to them by individuals in the same company. This disadvantages shareholders and would-be-shareholders. Stewart was informed by her stockbroker, Douglas Faneuil, that Mr. Waksal was seeking to offload family shares held at Merrill Lynch. Acting on this information, Faneuil had passed the same information to Mr. Bacanovic. Bacanovic instructed Faneuil to pass the information to Stewart. Stewart then directed Faneuil to sell all her 3900 shares (Smith, 2014).

While Mr. Waksal was a shareholder at Merrill Lynch, Stewart was a client and also held shares. Stewart was aware that the information she had been given by Faneuil about the sale was in contravention of the duties of confidence and trusted the stockbroker owed to the company and its clients. Nevertheless, she acted on the tip-off. She was convicted of securities fraud (Gilpin, 2005). Charges of conspiracy, deceit, and obstruction of justice were also preferred against her (Biography, 2004).

Martha Stewart’s Act as White-Collar Crime

White-collar crime is viewed as an illegal act typified by violation of confidence and trust, cover-up, or deception. These are not dependent upon the use of intimidation of, aggression, or physical force. In white-collar crimes, individuals and parties commit acts in pursuit of services, material goods, or money. Those involved seek to circumvent paying or losing services or money. They may also seek to secure individual or commerce advantage (Onlinelawyers, n.d.).

In view of Stewart, the criteria were met. Being a client of Merrill Lynch, she violated trust and confidence by acting on inside information provided by Faneuil. She covered her act by pretending to have acted instinctively to the market to sell her shares (Scannell and Rose, 2004). She had feared that the refusal by FDA to authorize the drug under test, Erbitux, would result in a drop in share value or eventual collapse of the company. By selling her shares, she realized more than $200,000. In the process, she avoided losing $45,000.

Martha Stewart’s Sentence

The sentence given to Stewart was not equivalent to the charges preferred against her and found guilty. She was given a five-month prison time, five-month house arrest with two years of probation thereafter (Hays, 2004). Each of the charges against Stewart has a maximum of five years in incarceration. This sentence is what the jury should have pursued, considering the increasing cases of white-collar crimes that involve millions of money. Nevertheless, the federal judge was not sufficiently harsh to give Stewart the maximum imprisonment. This is despite such crimes having been previously committed. Hence, Stewart was aware of the crimes and the repercussions. Further complicating her situation, she had been appointed to the stock exchange board of directors. This means that she was aware of the rules that govern stock exchange but chose to ignore them, instead opting to take the white-collar crime route.