Someone please explain this whole Martha Stewart scandal

[pandybat]

FYI: I'm not defending Martha Stewart. This could have happened to anyone and I would ask the same question. I personally think the woman has more money than she deserves. LOL

Anyway, my question is.....
I know *nothing* about stocks. Don't own them, don't watch them and don't want them.
But I don't see what the big deal with her getting a tip about her stocks going down and selling them before she lost money. I keep thinking if it was me, I would have freaked and done the same thing. But I say again, I know nothing about stocks. What is wrong or what is the complications of what she did so wrong? I really don't understand. After knowing about the tip-off, was she just supposed to sit and watch all her money go down the drain?
Here is a column of what went down:
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Aug. 9 — A chain of phone messages and e-mails involving Martha Stewart and her broker may shed new light on what happened the day Stewart dumped her ImClone stock ahead of a price slide for the company's shares, ABCNEWS has learned.

Investigators are looking over the communications in a bid to determine if the home-furnishings magnate broke the law the day she dumped her ImClone shares. Copies of the documents have been obtained by ABCNEWS' Good Morning America.
On Dec. 27, Stewart sold $227,000 worth of stock in the biotech company ImClone. The very next day, the company announced bad news that pushed the stock price sharply lower.

On the morning of Dec. 27, Merrill Lynch stockbroker Peter Bacanovic was asked by ImClone founder Samuel Waksal's daughter Aliza to sell all her stock in the company. Samuel Waksal, a friend of Stewart's, was indicted on insider trading and other charges Wednesday.

Within an hour of the sale of the daughter's stock, Bacanovic was trying to call Stewart, who was also his client, according to one of Stewart's assistants. Congressional investigators probing the ImClone case are now exploring whether Bacanovic could have tipped off Stewart.


First Contact

In a copy of an affidavit obtained by Good Morning America, the assistant said: "The call from Peter Bacanovic … came in some time between approximately 10 a.m. and 11 a.m."

Stewart, however, was unreachable. She was on a private plane, on her way from Connecticut to San Antonio, Texas. As they waited for Stewart's plane to land, Bacanovic and his assistant, Douglas Faneuil, swapped e-mails, copies of which have also been obtained by Good Morning America.

At 1:17 p.m, Bacanovic wrote: "Has news come out yet? Let me know." At 1:20, Faneuil replied, "Noting yet. I'll let you know. No call from Martha either." When Stewart's plane landed at 1:30 p.m., she called her office, where her assistant had earlier noted in the message log: "Peter Bacanovic thinks ImClone is going to start trading downward." Almost immediately, Stewart called Bacanavic's office, and 11 minutes later, the broker was selling all of Stewart's ImClone stock. In the last of the Dec. 27 e-mails obtained by GMA, Faneuil wrote: "Dear Mrs. Stewart, You sold your remaining (3,928 imcl) shares at an average price of 58.43(25). As always, feel free to call me with any questions …"

Stewart Friend May Talks

The Wall Street Journal reported today that a friend of Stewart's, Mariana Pasternak, will also assist investigators looking into the ImClone sale. The Journal said Pasternak was aboard Stewart's private jet, headed for a Mexico vacation, the same day Stewart's nearly 4,000 shares were sold. The newspaper said Pasternak may provide more information to counter Stewart's own account of her stock sale.

Stewart, chief executive of Martha Stewart Living Omnimedia Inc., has declined to meet with investigators, saying it would be premature. Stewart has said she had a standing order with Merrill Lynch to sell her ImClone stock when it went below $60. But she and Bacanovic, differ on when the order was placed.

On Dec. 28, ImClone shares went into a deep slide when it was announced that the Food and Drug Administration would not accept its application to review the colon cancer drug Erbitux.

Questions about Stewart's ImClone stock sale have sent her own company's shares on a downward spiral. Omnimedia shares dropped 72 cents, or 9.6 percent, Thursday to close at $6.78. It had been trading at around $19 in June.


Dec. 27, The Sale:

10 a.m. — 11 a.m. Stewart's assistant says she took phone call from broker Peter Bacanovic. She writes note in message log: "Peter Bacanovic thinks imclone is going to start trading downward."
1:17 p.m. — 1:20 p.m.Bacanovic and his assistant Douglas Faneuil swap e-mails referencing Stewart.
1:30 p.m. Stewart's plane lands. Stewart calls her office, then calls Bacanovic's office.
By 2 p.m. The broker sells Stewart's ImClone stock. Bacanovic's assistant e-mails Stewart with details of the sale.

[LocaChica]

I don't know much either, but here's another article that sheds more light. [Only registered and activated users can see links. Either login above or Register Now]

Insider trading is illegal when a person trades a stock while in possession of material non-public information in violation of a duty to withhold that information or refrain from trading, according to the Securities and Exchange Commission. In other words, if you have information that the public doesn't know about or you got such information from an inside source, it is illegal to trade on that information.

[ShainaT]

You can't receive insider information to buy/sell a stock. Period.

Martha knew things the rest of the world didn't know and used it to her advantage. And that isn't a good thing!

[blueaguave]

she built her brand around her name and personality, if she offered the same products, but under some kind of cutesy company name, her company wouldn't be dragged down by her personal scandal, her ego got in the way

[pandybat]

Ah..Ok..I get it now. Still knowing the information before the rest of the public would be pretty tempting to act upon if you stood to lose a lot of money. I can see why she did it. So according to all these emails, it seems to me she's just as guilty of insider trading as her broker is. This should be interesting to see how she squirms out of this one.

I wonder if this Samuel Waksal's daughter also got into trouble for selling her stocks after receiving the information from her dad.