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I have a question----

Say you have a sizeable stock investment in a company. Someone you know that has connections to the higher-ups in the company gives you a call and says that the head of the company is dumping stock. What would you do?

Not to devend Martha on this - she did lie which is basically what got her convicted - but I would probably dump my shares too.

Thing is, if Martha holds onto her stock and the stock tanks - she made a poor judgement and threw money out the window that she shouldn't have.
On the other hand, if she does the smart thing and jumps out of that stock ASAP, she is guilty of insider trading. So what does Martha do? The smart thing, she dumped those stocks.

Now, if she had told the truth - she would have been charged with insider trading and other higher-penalty crimes and would now be preparing for a sentencing with much worse terms that what she is facing now. If she lied, she is in the situation she is in now.

Sounds like she was between a rock and a hard place.

What would you have done?

"but I would probably dump my shares too."

You would be a fool to do that, unless the CEO's stock dump was public and conformed to SEC requirements. If it didn't and an investigation was initiated, you could be implicated. This just happened to Stewart.

Thank you for your concise outline of the case, I haven't really kept up with it. Your conclusion of "I would probably dump my shares too" is exactly what I have been thinking.

My question to the learned people of this forum is: What would have been the proper thing for Martha Stewart to do after hearing that her investment was going down the tubes?

Doesn't matter what people do, in situations like that...it is a MATTER of LYING that she was found guilty of.

It wasn't Bill Clinton's AFFAIR that got him in trouble...it was the COVER UP and LYING.

It is so obvious to see the closet Clinton admirers here at FR...

What would I have done with information that was obtained illegeally, whether it be from the owner or her broker, is that your question?

Isn't the point that she had information that she wasn't entitled to, regardless of how she got it?

The thing is, I would have done the RIGHT THING....and taken the loss......as the rest of the people who owned that stock had to do.

The real irony of this case is that the information Waksal got wasn't exactly right -- the drug wasn't passing a FEW GUIDELINES.

It was approved on February 8th of this very year.

"What would you do?"

If you own a stock and get inside information that it will be tanking soon, you just have to take the hit. However, you could try to offset the effect on your portfolio, say, by buying another stock that will likely go up because there will be less competition from the one you own; or you could short futures or have a "put" option on the sector your stock is in. I think that would be legal, at least, you wouldn't go to jail for it.