Post by RS Davis on Feb 11, 2004 20:00:45 GMT -5
[glow=red,2,300]James K. Glassman Wrote:[/glow]As Martha Stewart's trial moves into a third week, an important question remains unasked: Why are the feds prosecuting someone for receiving inside information, anyway? Isn't the criminal the corporate official who acts on knowledge that the public doesn't have?
The government charges that on Dec. 27, 2001, Stewart learned from her broker that Samuel Waksal, the chief executive of ImClone Systems Inc., was trying to sell his stock because he knew that the Food and Drug Administration would announce an adverse decision the next day about his company's cancer drug, Erbitux. Stewart then sold her own 3,928 shares at $58. When the news became public, the stock fell to $45, so Stewart saved about $50,000.
Waksal pleaded guilty to insider trading and is serving a seven-year sentence. Stewart, who was a friend of his, wasn't charged with insider trading but instead was slapped with obstruction of justice and fraud counts; the government charges that, by making false statements about her ImClone sale, she was illegally trying to prop up the stock of her own company, Martha Stewart Omnimedia.
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.
The Securities and Exchange Commission should leave people like Stewart alone and concentrate on real corporate crooks. In fact, investors should be encouraged to ferret out information any way they can. The more that surfaces, the better for markets.
The government charges that on Dec. 27, 2001, Stewart learned from her broker that Samuel Waksal, the chief executive of ImClone Systems Inc., was trying to sell his stock because he knew that the Food and Drug Administration would announce an adverse decision the next day about his company's cancer drug, Erbitux. Stewart then sold her own 3,928 shares at $58. When the news became public, the stock fell to $45, so Stewart saved about $50,000.
Waksal pleaded guilty to insider trading and is serving a seven-year sentence. Stewart, who was a friend of his, wasn't charged with insider trading but instead was slapped with obstruction of justice and fraud counts; the government charges that, by making false statements about her ImClone sale, she was illegally trying to prop up the stock of her own company, Martha Stewart Omnimedia.
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.
The Securities and Exchange Commission should leave people like Stewart alone and concentrate on real corporate crooks. In fact, investors should be encouraged to ferret out information any way they can. The more that surfaces, the better for markets.
- Rick
