Its a good piece, filled with solid analysis. The good Prof wrote the book — literally — on insider trading. The only problem is that the SEC isn’t really prosecuting the Insider Trading charge as their main focus. Yes, Martha’s been charged with insider trading — But what the SEC seems to be keying on is the “Obstruction of Justice and Lying to Federal Investigators” aspect:
“The Commission alleges that, during the morning of Dec. 27, 2001, Bacanovic instructed his assistant, Douglas Faneuil, to tell Stewart that Waksal and his daughter were selling all the ImClone stock held in their Merrill Lynch accounts. During a subsequent telephone call, Faneuil conveyed that information to Stewart, who promptly instructed Faneuil to sell all 3,928 shares of her ImClone stock. The next day, Dec. 28, 2001, ImClone announced that the FDA had decided not to accept ImClone’s Erbitux application for filing. By the close of the next trading day, Monday, Dec. 31, 2001, the price of ImClone stock dropped 16% to $46 per share. By selling when she did, Stewart avoided losses of $45,673.
The Commission alleges that Stewart and Bacanovic went on to lie when the Commission staff and criminal authorities questioned them about the facts surrounding Stewart’s sale of ImClone stock. Stewart and Bacanovic fabricated an alibi for Stewart’s trades, stating that she sold her ImClone stock because she and Bacanovic had decided earlier that she would sell if ImClone’s stock price fell below $60 per share. In addition, Stewart told the government that she did not recall anyone telling her that day that any of the Waksals were selling their ImClone stock.”
Similar language shows up in other SEC docs:
On several subsequent occasions, Stewart and Bacanovic lied to the Commission, the U.S. Attorney’s Office for the Southern District of New York, and the Federal Bureau of Investigation about the events of December 27, 2001 and the facts surrounding Stewart’s sale of ImClone stock. For example, the Defendants fabricated a false alibi for Stewart’s trades, stating that she sold her ImClone stock because she and Bacanovic had decided earlier that she would sell if ImClone’s stock price fell below $60 per share. In addition, Stewart told the government that she did not recall anyone telling her that day that any of the Waksals were selling their ImClone stock.
As tricky Dick so effectively showed us, tain’t the crime but da coverup dat getsya.
I don’t think its an effective legal strategy to focus on defending yourself against charges that aren’t the main focus of where prosecutors are aiming. Yes, it sounds bizarre, but the Insider Trading charge is where Martha is most likely to skate. The lying to investigators is her vbulneability.
Sometimes the best thing to do is just lawyer up and keep your muffin bakin’ mouth closed. Other than that . . .
Hat tip to Marginal Revolution
The insider trading charge against Martha Stewart, Professor Bainbridge
Litigation Release No. 18169 / June 4 2003, Securities and Exchange Commission v. Martha Stewart and Peter Bacanovic, 03-CIV-4070 (NRB)(S.D.N.Y.)