As a total layman who is approaching 70, my take is that Back When I Was A Boy it wasn't a crime to lie to the cops, but it now is. I read lots of news stories that people are convicted for lying to various sorts of investigators. Plan your life accordingly.
Speaking as a complete layman, I have to contest "whether Martha Stewart’s sale of ImClone shares constituted illegal insider trading, the answer is actually no." If I was on the jury and the question was handed to me as to whether her trade was motivated by "material, non-public information", I would say yes. It doesn't take a lot of brains to deduce from the fact that people in a position to have inside information are dumping the stock that it's likely they have information that tells them that the stock is worth less than the current market price. That wasn't "publicly-known" at the time. And certainly, it's "material" because that's what caused her to sell the stock.
As to how she got prosecuted, a wise person would have laid all the facts down for her high-priced lawyers and then do what they told her. Which I assume was either "tell them everything" (if the law and facts are on her side) or "say nothing" (if not). Which Steward clearly didn't do.
And given "Like every other interaction between Martha Stewart and the assistant, she was apparently quite nasty during the call, a fact that came out at the trial to great fanfare and to the surprise of precisely zero people." I expect that Steward not only lied to the prosecutors, she was nasty to them. It doesn't take a genius to realize that is a bad strategy because it motivates the prosecutors. As a matter of psychology, I suspect that Stewart thinks of herself as superior to everybody else, and the one thing you don't do to people with official authority is diss their authority.
Your instinct is reasonable about what may constitute material non-public information, but the application of the law generally starts with an initial breach of duty by the person with insider information. The above law review article sums up the legal standard pretty well. Relevant section below:
"The trader does not know the reasons for the trade, just the existence of the
trade itself. Anyone piggybacking on an insider’s trade would not be
knowingly participating in an insider’s breach of duty. This is because
the insider, by trading, would not be providing anyone with information
for the insider’s benefit. Therefore, policy dictates that the act of using
knowledge of an insider’s trade should not be treated as an illegal tip of
material nonpublic information in violation of rule 10b-5 [insider trading].
A tippee only violates rule 10b-5 as a participant in an insider’s
breach of duty. To do so, a tippee must know of the insider’s
breach. Ordinarily, a rule 10b-5 action based on piggybacking would
be difficult, if not impossible, to prove. Piggybacking is based on the
trading itself as a tip of material nonpublic information. Knowledge that
an insider is trading differs from knowledge that an insider is breaching
a fiduciary duty. Corporate insiders may buy and sell stock in their
company so long as they do so when they do not have material
nonpublic information. Consequently, anyone aware of an insider’s
trading cannot “know” that the insider is trading on material nonpublic
Ah the memories... I wasn't on that case, but I lost months of my life in the Met Life Tower of Power organizing documents, the "Hot Docs" reference gave me ptsd all over again!
As a total layman who is approaching 70, my take is that Back When I Was A Boy it wasn't a crime to lie to the cops, but it now is. I read lots of news stories that people are convicted for lying to various sorts of investigators. Plan your life accordingly.
Speaking as a complete layman, I have to contest "whether Martha Stewart’s sale of ImClone shares constituted illegal insider trading, the answer is actually no." If I was on the jury and the question was handed to me as to whether her trade was motivated by "material, non-public information", I would say yes. It doesn't take a lot of brains to deduce from the fact that people in a position to have inside information are dumping the stock that it's likely they have information that tells them that the stock is worth less than the current market price. That wasn't "publicly-known" at the time. And certainly, it's "material" because that's what caused her to sell the stock.
As to how she got prosecuted, a wise person would have laid all the facts down for her high-priced lawyers and then do what they told her. Which I assume was either "tell them everything" (if the law and facts are on her side) or "say nothing" (if not). Which Steward clearly didn't do.
And given "Like every other interaction between Martha Stewart and the assistant, she was apparently quite nasty during the call, a fact that came out at the trial to great fanfare and to the surprise of precisely zero people." I expect that Steward not only lied to the prosecutors, she was nasty to them. It doesn't take a genius to realize that is a bad strategy because it motivates the prosecutors. As a matter of psychology, I suspect that Stewart thinks of herself as superior to everybody else, and the one thing you don't do to people with official authority is diss their authority.
https://ideaexchange.uakron.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=1234&context=akronlawreview#:~:text=Since%20Martha%20Stewart%20apparently%20feared,no%20basis%20for%20her%20conviction
Your instinct is reasonable about what may constitute material non-public information, but the application of the law generally starts with an initial breach of duty by the person with insider information. The above law review article sums up the legal standard pretty well. Relevant section below:
"The trader does not know the reasons for the trade, just the existence of the
trade itself. Anyone piggybacking on an insider’s trade would not be
knowingly participating in an insider’s breach of duty. This is because
the insider, by trading, would not be providing anyone with information
for the insider’s benefit. Therefore, policy dictates that the act of using
knowledge of an insider’s trade should not be treated as an illegal tip of
material nonpublic information in violation of rule 10b-5 [insider trading].
A tippee only violates rule 10b-5 as a participant in an insider’s
breach of duty. To do so, a tippee must know of the insider’s
breach. Ordinarily, a rule 10b-5 action based on piggybacking would
be difficult, if not impossible, to prove. Piggybacking is based on the
trading itself as a tip of material nonpublic information. Knowledge that
an insider is trading differs from knowledge that an insider is breaching
a fiduciary duty. Corporate insiders may buy and sell stock in their
company so long as they do so when they do not have material
nonpublic information. Consequently, anyone aware of an insider’s
trading cannot “know” that the insider is trading on material nonpublic
information in breach of a fiduciary duty."
Well done Brian. Great story and timely. We need a change agent BUT ALSO an adult running Justice. Keep up your great writing!
This was not a great job 😂
Ah the memories... I wasn't on that case, but I lost months of my life in the Met Life Tower of Power organizing documents, the "Hot Docs" reference gave me ptsd all over again!