Martha_Stewart

Insider trading is a stock market transaction that is made with knowledge of nonpublic information about corporate activity. There are, however, situations of stock market trading that is legal but is questionable from an ethical view. There is a fine line between legal and illegal activity in regards to insider trading. In the case of Martha Stewart, she was given information from a friend whose company she had made an investment. She was tipped off that the FDA was not going to approve the drug they were producing. Martha reacted by selling her stock in the company the day before the news became public. A similar activity could have taken place and been perfectly legal. If a person overheard a conversation between two people that were discussing this same situation but were not involved in the conversation, then legally that person could make a transaction based on that information and be completely legal. This action would, however, raise ethical questions. There are insider transactions that take place on a regular basis so was Martha Stewart held to a higher standard' "If her name were Martha Smith, this never would have come to trial, asserted one talking head on MSNBC in the wake of the verdict, implying that Martha has been unfairly targeted because of her celebrity. Maintaining ethical and legal norms is one of the jobs of the government, and the prosecution of prominent people makes a much greater impact on everyone else than the anonymous prosecution of an average citizen.” ("Money, greed and," 2004) Martha and other celebrities can be expected to be held to higher standard based on the popularity and power they have to influence the attitudes of the general public. There have been questions regarding the US Congressional Ethics rules on insider trading. There currently is not a law prohibiting the US Supreme Court and the US Senate from using nonpublic information for financial transactions. “Government officials, by virtue of their position to regulate industries, enact legislation, or render court decisions affecting businesses, have access to nonpublic, market moving information that can give them an advantage in the stock market. A 2004 Georgia State study revealed that US Senator’s stocks on average beat the market average by 12.3% annually.” ("Us congressional ethics," 2009) Obviously, it is debatable whether this should be law or not but the question of Ethics and morals must also be considered.” People in many fields of endeavor are privy to valuable confidential information before it is made public: For example, business executives, investment bankers, and lawyers have access to information about impending corporate mergers and acquisitions; Judges, juries, and court personnel have access to information about the probable outcome of court decisions; and officials at the FDA [Food and Drug Administration], EPA [Environmental Protection Agency], and other administrative agencies have access to information about the likely outcome of regulatory proceedings. All of these individuals are prohibited by law from using such confidential information in the purchase and sale of publicly traded stocks.” ("Us congressional ethics," 2009) Martha clearly falls in this category of individuals and not only broke the law but also crossed the ethical and moral boundaries. All and all there were nine charges originally filed against Martha Stewart and her stock broker Peter Baranovichi in a 41 page federal indictment filed Wednesday June 4th, 2003. The charges include: conspiracy, several counts of false statements, making and using false documents, perjury, two counts obstruction of justice, and securities fraud. Martha Stewart proclaimed her innocence from the beginning and continued to throughout the trial and even at the conclusion of the trial. Martha Stewart turned to writing an open letter to the public in the newspaper USA Today in order to share her proclaims of innocence. Martha Stewart wanted desperately for the public to know that she was innocent of these crimes. Due to all of the negative publicity surrounding the upcoming trial she decided to for the time being step down in her roles in her company. She had many supporters through this trying time in her life, including her daughter that sat front row every day of the trial. The focus of the trial was on her sale of shares of the biotechnology company more than two years earlier in which she netted about $45,000. Neither Martha Stewart nor her stock broker Peter Baranovichi testified at the trial. At the trial, the defense attorney’s spent less than twenty minutes questioning the only defense witness. There came to be question of the strategy her defense lawyer took. There were many witnesses for the production and one that was particularly damaging was an assistant who overheard a phone conversation about selling. While he quietly cried on stand, obviously not wanting to testify against her, he had to share what he knew under oath. Both Martha Stewart and her stock broker were found guilty by the Manhattan jury. Stewart still proclaimed innocence and vowed to appeal her conviction. Unfortunately for Martha Stewart the outcome of the case was a huge victory for the US Attorney’s office. “Ms. Stewart, the founder of Martha Stewart Living Omni media, who had proclaimed her innocence from the start in public statements and through a carefully orchestrated image campaign, showed little emotion as the verdict in her trial on federal criminal charges was read aloud about 3 p.m.” (Hayes, & Eaton, 2004). She was found guilty of lying about why she sold shares in the company by a jury. Martha Stewart was ultimately sentenced to five months in federal prison. “Ms. Stewart, 62, is the latest and most prominent executive to be convicted since a wave of corporate scandals unfolded with the collapse of Enron.” (Hayes, & Eaton, 2004).