It was almost four years ago that the great stock market bubble burst. Despite revelations of systematic fraud across Wall Street and corporate America, the criminal consequences have been surprisingly minimal. The Wall Street banks, at the heart of the chicanery, mostly got off with a $1.4 billion settlement deal with the authorities, less than 4 percent of their profits between 1996 and 1999. The disappointingly short list of the indicted and/or jailed includes a handful of Enron execs, Tyco's Dennis Kozlowski, ImClone's Sam Waksal...and not many more. Though they and their deeds are rich with symbolic value, almost none of them have become household names. The major exception was a household name before indictment: Martha Stewart, whose trial began on January 20.

Why Martha? Though most people think she's charged with insider trading, she's not. She's charged with conspiracy, obstruction of justice, lying to federal prosecutors and securities fraud--charges for which she could do serious time if convicted. And the original trade that gave rise to all this trouble was probably not illegal in itself.

So what's it all about? In December 2001 Stewart held 3,928 shares in ImClone, a New York-based biotech firm that was about to hear some bad news from the Food and Drug Administration, news that would inevitably hammer its stock--that its promising cancer drug Erbitux was not going to be approved. On the morning of December 27, the day before the bad news was to be made public, Aliza Waksal, the daughter of the firm's CEO, Sam Waksal, told Douglas Faneuil, the assistant to her Merrill Lynch broker, Peter Bacanovic, to sell the ImClone shares in her account. Soon after, Sam Waksal's accountant tried to sell Sam's shares as well. Faneuil told Bacanovic about the Waksals' lust to sell, and Bacanovic quickly called Stewart, leaving a message that ImClone's stock was "going to start trading downward." If he based that opinion on the Waksals' actions, telling other clients would violate Merrill Lynch's client confidentiality policies.

There followed a series of phone calls, whose exact content is in dispute. What isn't in dispute is that Stewart sold her ImClone shares on the afternoon of the 27th. The question is why. If Bacanovic told Stewart that the Waksals were bailing out of ImClone stock, that might have been illegal (but historically such maneuvers haven't been treated as such). Stewart claims that she had a pre-existing arrangement with Bacanovic to sell her shares if the price fell below $60, but she hadn't put in a formal "stop-loss" order, which would have set off the sale automatically.

ImClone's stock fell on the 27th on heavy trading volume, a sign that more than a few people probably knew of the FDA action in advance. But it fell even harder after the announcement on the 28th. Stewart saved around $45,000-$50,000 by selling early, but it's almost impossible to say at whose expense that saving came. Compare that with, say, the huge and very visible losses suffered by stock investors who were seduced by the happy talk and lies coming from CEOs and Wall Street analysts.

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