Martha Stewart Guilty

[Dr. Rat]

Hate to drag this thread on, but, Philly, I'm wondering: Is the sale still fraudulant (because Stewart knew of the impending drop in price) even if it is not technically insider trading?

From J's post, I guess the answer is yes, but just wondering what your take on that issue was.

--eric

Doc: I'm not 100% sure I understand your question, but I think I do and it really gets to the heart of why insider trading is nearly impossible to prove (Waskal pleaded guilty in order to minimize damage and avoid a potentially harmful investigation). Say Martha's story is true - she really had a standing $60 order. Then the sale is completely lawful, even if she receives the inside tip without disclosing it prior to the sale. There are three stages to proving insider trading: 1) Prove that the person recveived the information (this part is relatively easy). 2) Prove that the information, if made public, would have substantially altered the trading value of the stock (this part is very easy). 3) Prove that the seller did not intend to sell the stock prior to receiving the information. It's the third part that is nearly impossible to prove - prosecutors normally avoid charges that involve proving intent.

I think Philly was making the point that it wasn't technically insider trading because Martha didn't get the tip directly from an "insider." (You'll have to go back and check against his posts).

I was wondering IF this isn't "insider trading" could it still be "stock fraud?"

--eric

[J Larsen]

Sorry, I didn't get that out of his posts. In any event, "insider trading" refers to trading based on non-public information. It doesn't matter who you directly get the information from - if it's not public, it's not legal to trade on.

Edited March 9, 2004 by J Larsen