Martha Stewart had a total of 3,928 shares in ImClone Systems, a giant biopharmaceutical company. In late 2001, ImClone Systems was awaiting a decision of Food and Drug Administration (FDA) on a monoclonal antibody-based drug it had developed (Dove, 2002). However, some insiders in the New York Stock Exchange learned in advance that FDA had not approved the proposed drug (Brenner, 2003).
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FDA was to announce its verdict on the proposed drug on December 28. On December 27, Stewart’s broker, Peter Bacanovic, informed her that ImClone Systems’ share price was to drop sharply because FDA had not approved the company’s proposed drug (Bains, 2006). On that same day, Stewart sold all her shares of ImClone Systems, valued at 230, 000 USD. In so doing, she avoided a loss of 45, 673 USD (Hoffman, 2007).
Charges against Martha Stewart
Martha Stewart was charged with perjury, stock fraud, obstruction of justice, falsifying statements and conspiracy. She was accused of perjury because she swore false oath. Stock fraud was the main charge against Stewart.
Stewart had tried to impede the administration of justice through many ways; thus she was charged with obstruction of justice. She had also falsified her statements to evade the justice system. Stewart had conspired to make false statements so as to absolve her of any wrong doing.
Peter Bacanovic was Martha’s co-defendant. He was Martha’s stock broker, and he is the one who had told her that the ImClone Systems stock price would decline because FDA had rejected its proposed drug. It was a good idea for Martha Stewart to be tried with Peter as the co-defendant. He was the source of information that influenced Martha to sell her shares illegally.
In their closing arguments, the prosecution asked the judges to consider the evidence given by the prosecution and find the defendants guilty of the charges against them. On the other hand, the defense teams urged the jury not to find the defendants guilty because no witness or document had reliable evidence to convict their clients.
The defense teams filed two pre-trial motions. The defense argued that the last witness in the trial had lied while giving evidence against the co-defendant. The motion was dismissed. A week later, the defense also filed a similar motion to grant Martha a new trial, which was also dismissed. The prosecution filed a motion to have the defendants indicted for lying to the jury. The motion was accepted.
One of the key witnesses by the prosecution was an expert witness who testified that Peter had forged documents to impede the legal justice. Expert witnesses are essential in giving evidence in their areas of specialization (Saks, 1990; Stygall, 2001).
The other witness was a friend of Stewart who testified that Stewart was aware that the majority owner of ImClone Systems was planning to sell his shares. Stewart’s defense team called only one witness while Peter’s defense team called a handful of witnesses to testify before the jury.
The stock fraud charge was decided by the judges and not the jury. It was described as a ‘novel’ charge in law by the judges. Therefore, it implied that it required better legal interpretation than the other charges, which were common. Under such circumstances, judges have a legal right to take charges from the jury to make their decisions (Carlson & Russo, 2001; Viscusi, 2001; Seigel & Slobogin, 2004).
The jury found Steward guilty of obstruction of justice, falsification of statements, perjury and conspiracy. It was proved beyond a reasonable doubt that Stewart was guilty of the four charges confirmed. She had conspired to evade the justice system. She had falsified statements and had taken a false oath in court.
The defendants were handed the same sentences, i.e. parole, imprisonment and home restriction for 2 years, 5 months and 5 months respectively. In addition, Stewart and Peter were ordered to pay 30,000 USD and 4, 000 USD fines respectively.
Stewart requested for a new trial because the main expert witness had lied to the jury. Therefore, he held that a ruling could not be based on such fabricated evidence by a key witness. The judge rejected the motion and set a date for giving sentence.
I do not agree with the judge’s view. I think that the bench should have started a new trial because they had relied on false evidence given by the expert witness. It was evident that the witness had lied. He was even charged for giving false testimony in court.
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After the ruling of her case, Steward made it clear in a media conference that she would appeal the ruling. She appealed the ruling that found her guilty of the four charges. However, the appeal was rejected in early 2006. The Federal Appeals court could not find substantive grounds for rejecting the jury’s ruling. The grounds that could exist for such an appeal could be the legal fact that the jury rejected Stewart’s motion to have a new trial.
Bains, W. (2006). Fraud and scandal in biotech. Nature biotechnology, 24(7), 745-747.
Brenner, R. (2003). Towards the precipice. London Review of Books, 25(3), 15-22.
Carlson, K. A., & Russo, J. E. (2001). Biased interpretation of evidence by mock jurors. Journal of Experimental Psychology: Applied, 7(2), 91.
Dove, A. (2002). Promising drug is victim of bad business. Nature medicine, 8(3), 199- 199.
Hoffman, D. (2007). Martha Stewart’s insider trading case: A practical application of Rule 2.1. Geo. J. Legal Ethics, 20(1), 707.
Saks, M. J. (1990). Expert witnesses, nonexpert witnesses, and nonwitness experts. Law and Human Behavior, 14(4), 291.
Schroeder, J. L. (2004). Envy and Outsider Trading: The Case of Martha Stewart. Cardozo L. Rev., 26(1), 2023.
Seigel, M. L., & Slobogin, C. (2004). Prosecuting Martha: Federal Prosecutorial Power and the Need for a Law of Counts. Penn St. L. Rev., 109(1), 1107.
Stygall, G. (2001). A different class of witnesses: Experts in the courtroom. Discourse Studies, 3(3), 327-349.
Viscusi, W. K. (2001). Jurors, Judges, and the Mistreatment of Risk by the Courts. The Journal of Legal Studies, 30(1), 107-142.