Save Martha Stewart? Observations About Equal Justice in U.S. Insider Trading Regulation

Abstract

Martha Stewart is the subject of a civil enforcement action alleging violations of U.S. securities laws and regulations governing insider trading. The facts, as we now know them, suggest that the considerable governmental resources spent in pursuit of Martha Stewart (which are out of proportion to the apparent financial magnitude of any illegal trading activity) result from an express decision to single her out for potential criminal prosecution or civil enforcement based on some personal characteristic or characteristics. After describing the basic structure of insider trading regulation in the United States, this paper identifies potential structural sources of selective enforcement in the regulation of insider trading and isolates certain easily recognizable bases for enforcement bias in the application of that regulation, using the Martha Stewart insider trading investigation as an example. Ultimately, the paper recommends more rigorous investigation into possible sources of selectivity and bias in insider trading enforcement and offers preliminary suggestions for ways in which the identified potential for bias may be obviated or overcome, consistent with the current federal regulatory and political environment.

Keywords: Insider Trading, Equal Justice, Enforcement Discretion

JEL Classification: K22, K42, D63, G34