Insider Trading and Martha Stewart Essay

Martha Stewart, homemaker turned media mogul, spent time in 2004 and june 2006 in imprisonment for against the law insider trading. While insider trading is not necessarily against the law if reported properly, more frequently insider trading is done within a fraudulent manner.

This conventional paper will take a look at insider trading and go over the Martha Stewart case in regards to fraudulent insider trading. Insider trading is once corporate insiders such as officials, directors, or holders trade more than 10% of the companies stocks or securities (wikipedia, 2006). Insider trading is usually legal provided that the transaction is reported to the Securities and Exchange Commission (SEC) and not based upon material nonpublic information. Insider trading can be illegal every time a corporate insider’ is misappropriating private information, and trading onto it or secretly relaying the info (wikipedia, 2006).

Illegal insider trading is recognized as a violation of trust to the shareholders and destroys the level playing field for all those investors to make decisions based on similar information. In the Martha Stewart case, Stewart received info from her friend Sam Waksal that his firm, ImClone’s malignancy drug had been rejected by FDA before the information was made public (Rasmussen, 2006). The rejection by the FDA triggered ImClone’s inventory to drop greatly.

Before this news was made public, Martha Stewart acquired her stockbroker sell her 4000 stocks of ImClone. The inside’ information saved Stewart a lot of cash when the girl sold her shares premature of the unfortunate thing going open public for ImClone. The Martha Stewart judgement was validated because Martha was not impending with the information she understood and her motives to trade the inventory.

Martha and especially her stockbroker knew we were holding taking advantage of what seemed like lucky’ information. Though Martha seemed a scapegoat, there are many others that have probably committed the same crime of insider trading and with any luck , this case provides helped prevent further violations of the rules in the future.