Martha Stewart & Insider Trading

[Capitalist]

Pundit and psychologist Michael J Hurd opines:

Martha Stewart is guilty-- But of what??

"Martha Stewart is guilty of lying. She obstructed justice. That’s why she should be going to jail."

People tell me that this is what they think about Martha Stewart’s recent conviction. Yet when I ask them, "Would you have sold your stock if you knew it was about to crash? Or would you selflessly ignore the information and take the loss?" In just about every single case, they reply, "I’d sell it, of course."

The moral status of a hypocrite indicates that his argument likely means little.

Martha Stewart lied, if in fact she did, because she had every reason to believe she would be convicted of insider trading if she didn’t. Yet the large numbers of people who assume insider trading should be a crime admit, usually without shame, that they would sell their stocks if inside information led them to believe their stocks were about to tumble in value.

It’s said that this sort of "insider trading" activity gives the Martha Stewarts of the world an unfair advantage over "the little guys." What this argument ignores is that the Martha Stewarts of the world, who hold the most stocks, invest the most and take the biggest risks. In the case of Martha Stewart, the company would not even exist without her years of effort and the huge market value of her personality. What seems more unfair to me is that people who achieve a lot are denied the same rights that would be afforded to anyone else who doesn’t achieve as much, and doesn’t take nearly the risk.

Chappell Hartridge, a juror who spoke publicly about his decision to convict Martha Stewart, commented after the verdict was public, "Maybe it’s a victory for the little guy who loses money in the markets because of these types of [insider] transactions …"

Earth to Hartridge: You just succeeded in killing Martha Stewart’s company. You helped destroy the jobs of the people she employs and all her stock value in the process. Lots of little and medium-sized guys are being hurt by this. Get real. We know that it wasn’t the defense of the "little guy" you were after. It was the destruction of a woman of high accomplishment you wanted. Why don’t you stop telling lies?

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As was commented on another list :Insider trading should not be outlawed -no force is initiated. There is no such thing as the right to prevent someone selling something you own (or will buy) for a high price.The exchange of stocks, fraud aside, is not the government's responsibility. People should be free to trade stocks according to whatever terms those establishing the market choose. If you don't like the terms you can go somewhere else.
Amen

[hiawatha]

I would sell shares to avoid a loss, but this is not hypocritical beeause I am not privy to any inside information. The information on which I sold would be information that was generally available to the markets. The situation with insider trading, however, is similar to the position in insurance where the purchaser of insurance is required to disclose to the insurer all relevant information bearing on the risk. A director of a company may be deemed to have a fiduciary obligation, when selling shares in that company, to make known to the buyer any information he has which is not yet available to the markets.
And, lets face it, would you buy shares from a director who told you that, unbeknownst to the markets, his company was, for example, on the brink of insolvency.
hiawatha

[bongo66]

Your talking seeite here Cap. If ALL holders were aware of the same info as MS then it would be fair to sell and it would then be a case of you snooze you lose.

MS attitude to business and her investors is corrupt and she should be punished. Too many company heads are getting away and it is in fact the little guy who keeps getting punished.


She will get away with it i think.

B

[take5]

Good Post Cap, but I have to disagree because rules are rules.

People participate in the US sharemarket because the SEC enforces
rules that basically say that regardless of your shareholding, everyone should be able to make decisions on company information that is made to the investing public in general. No one should be privy to being able to execute buy/sell decisions based on information not available to the public, and hence have an unfair advantage. We all know in practice that is difficult to police, but nevertheless, these are the ideals. Anyone who is proven in a court of law to break these rules, then pays the penalty.

Now, regardless of whether it is fair for a majority shareholder who has built up a company from scratch and put in all the hard sweat, blood and tears to build up a company, once they decide to float on the sharemarket, they have to accept the rules, including their corporate governance responsibilities.

If all market participants are informed that insiders are permitted to trade at any time, then fair enough, let the insiders trade on private information and let minority shareholders make those "buyer beware" decisions. But that is not the case in the US, market participants do not expect to be unduly disadvantaged by not being privy to financial accounts before publish date (for example).

Under current rules enforced by the SEC, insider trading IS UNFAIR.

[Gryffyn]

Cap said "People should be free to trade stocks according to whatever terms those establishing the market choose. If you don't like the terms you can go somewhere else."

But Cap, the market has set rules and insider trading breaks those so you invalidate your original statement.

Free markets and a capitalist society depend on transparency and rule of law. Capitalism does not mean or require unfettered markets but ones that attract and promote capital investment and the free flow of money - insider trading skews this and is therefore inefficient in the long term.

[The Doctor]

Cap Bob Jones for one would agree with you.."don't sell,never sell(at lest not before I have and the price has collapsed!)'...of course the real 'crime ' is getting 'caught'!

[Capitalist]

Y'all have made good points, and what I have tried to point out here is the Martha Stewart scandal is a case study of the Tall Poppy Syndrome. For those who suffer from Tall Poppy Syndrome, other people's achievements are an affront, an intolerable reminder of their own shortcomings. These are the people who desperately search for dirt to sling at celebrities, to show that they aren't so good after all—and who rush to join any witch hunt and repeat any allegation.

By the way, small investors would have nothing to invest in if there weren't large investors bank-rolling IPOs and equity research. The stock exchanges in NZ came about because the well-heeled had put aside enough money to make a stock exchange worthwhile. It's the well off speculators that provide liquidity that allow your Mom-&-Pop investors to get in and out of shares without having to cross a far higher bid-ask spread.

[Gryffyn]

Cap, Tall Poppism is alive and well everywhere - no arguement. But Tall poppies have to remember that they are just poppies too. Your post makes good points about the big players enabling littler players to get involved - great - but they don't do it for that reason and little players wouldn't come to the party if tall poppies got away with murder as the article suggests they should be able to.

That article makes the mistake in assuming that the 10 mill a big player invests is more important than the 100k I might invest and they should be allowed advantages because of that. Crap - they need the small players too otherwise they wouldn't be using a public float and that 100k of mine may be a bugger chunk of my wealth than their 10 million.

That juror didn't help kill the MS company - she did by cheating and undermining the system that we all need to be able to invest and trade equally.

[Gryffyn]

PS - pointing out hypocrisy doesn't invalidate an arguement - it shows that an individual is weaker than the moral they expound.

[Lawso]

Those smooth-talking apologists for MS have overlooked the crucial point - she unloaded that stock knowing that some poor sod(s) would lose a bundle on it.

Capitalist you would moan like hell if you were one of the small shareholders that got done. Or do you get inside imformation for all your trades.

[Sid]

quote:Originally posted by Capitalist

Y'all have made good points, and what I have tried to point out here is the Martha Stewart scandal is a case study of the Tall Poppy Syndrome.

This is nothing about Tall Poppy Syndrome. This is about a person breaking the law, and then telling the most pathetic lies to try and cover her tracks. Tall Poppy Syndrome protects the Tall Poppy in more times than it brings the Tall Poppy down.

[Capitalist]

Here's a nice story from Lew Rockwell's site. Socialist moonbats and anti-Americans love this guy, but *surprise* he is an an-cap.
http://www.lewrockwell.com/anderson/anderson87.html

[winner69]

Irony is that in a few weeks time Imclone shares could be back to the price she was 'advised' to hock them off (She sold at ~$58.55 and now $47.85)

Should have been a buy and hold investor eh - so much for insider trading

I bet she wasn't the only 'imsider' who sold out (or shorted) when she did .... and prob the same people have cashed in on the latest rise as well
But I

[marcer]

Even if it is Tall Poppy Syndrome, that is besides the point. Rules is rules.
Especially Cap, as a self proclaimed capitalist (i.e market should rule etc) if you refer to any 1st year economics text it will tell you that a free and fair market relies on demand and supply, and equal/freedom of information to everyone. Not just those in high places.
Regards Marcer