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Abstract

This article will set out to show that Martha Stewart did not engage in insider trading. First, the article will present the legal standards for insider trading. Then, the article will examine whether Martha Stewart received an improper tip from Sam Waksal, the president of ImClone and a personal friend of Martha Stewart. The article will then proceed to look at whether Martha Stewart’s knowledge of Waksal’s attempted trading constituted material nonpublic information on which she improperly traded. Lastly, the article will examine whether Peter Bacanovic’s breach of Merrill Lynch’s confidentiality policy in telling Martha Stewart of another customer’s trading provided a basis for a rule 10b-5 violation. The conclusion of this article is that there are no established facts that Martha Stewart owed anyone a fiduciary duty, nor that she inherited anyone else’s duty, which should result in a violation of rule 10b-5. When Martha Stewart misled investigators about her trading, she feared wrongly that her trading was illegal.

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