Sample Research Outline
Case Study: United States v. Martha Stewart
My case study is on United States v. Martha Stewart, and I am focusing on the insider
trading aspect of her case in my paper. I have found a lot of media articles about her case and her
trial, but it has been more challenging to find articles that look at insider trading. However, I
have been able to locate five peer-reviewed journal articles about different aspects of insider
trading. This is more than I need, but I am not yet sure which of these I will be citing in my
paper.
One article is titled, “Do perceptions of punishment vary between white-collar and street
crimes?” (Schoepfer, Carmichael, & Piquero, 2007). This article will be useful for my paper
when I am describing any differences that exist between treatment of white-collar criminals and
street criminals. This study uses robbery and fraud to determine public beliefs of sanction
severity and certainty (Schoepfer et al., 2007). The study takes into demographic factors such as
age, gender, race, income, education, marital status, political views, employment status, and past
experience with victimization. The data used came from the National Public Survey on White-
Collar crime, which was conducted by the National White-Collar Crime Center, and this data
was gathered through telephone interviews (Schoepfer et al., 2007).
Another article, “The World Price of Insider Trading,” focuses on insider trading laws
and the enforcement of these laws (Bhattacharya & Daouk, 2002). There are 103 countries that
have stock markets and there are insider trading laws in 87 of these countries. Based on insider
trading prosecutions, only 38 of these countries enforce these laws. There are two purposes of
this article. The first one being a survey about the existence and enforcement of insider trading
laws across the world (Bhattacharya & Daouk, 2002). The second purpose is to decide if the
existence and enforcement of insider trading laws matters. Specifically, the research question is
if prohibitions against insider trading affect the cost of equity. This study used primary and
secondary data from different sources (Bhattacharya & Daouk, 2002). The data is separated into
three categories, which are data on the existence and enforcement of insider trading in different
stock markets in the world, stock market returns, and other variables that can potentially affect
the cost of equity in a country (Bhattacharya & Daouk, 2002). This article will be a supporting
article when I am describing and explaining what the insider trading laws are, the enforcement of
them, and if they are effective or not.
An article titled, “A game theory model of regulatory response to insider trading,”
focuses on the development of a model that helps to explain the developing regulations around
insider trading (Smales & Thul, 2017). A game-theoretical model attempts to demonstrate how
insider trading transactions, the costly investigations of insider trading cases, and low penalties
are incentive for traders to participate in illegal transactions. The model helps with explaining the
stricter regulations occurring, but it is still unclear if the increase in strictness are enough to
prevent future insider trading (Smales & Thul, 2017). I will use this article as supporting
evidence of if the insider trading laws are effective or not, and possibly some solutions if they are
ineffective.
The “Economics of Insider Trading: A Free Market Perspective” article investigates why
there is a belief that insider trading laws are viable, necessary, or compatible with the rule of law
(Smith & Block, 2016). I feel including in article with this stance is important to include, and I
believe it will help me with explaining why insider trading laws are necessary. The article uses
real estate, labor, and commodities as a comparison of other markets that do not have laws
against sharing insider knowledge (Smith & Block, 2016). The authors consider the position the
Securities and Exchange Commission has, how insider trading is currently viewed as harmful to
investors, and delay and manipulation. They also discuss who benefits from insider trading
regulations, look at the issues of improved price stability, and the ineffectiveness of regulation
(Smith & Block, 2016).
The last article, “Insider Trading Enforcement & Link Prediction,” describes link
prediction as a method to help manage its caseload and discover more insider trading cases (Van
Osselaer, 2017). Link prediction works by using network structures, along with other
information, to predict links between people or organizations or links that will exist in the future.
The goal is that the link prediction systems would be able to predict how and where the traders
received the insider information from (Van Osselaer, 2017). The SEC investigators would
possibly be able to use this system as a method to do low-cost preliminary case audits and if a
link is predicted, it will construct a roadmap for a full investigation. The author also explains
inside trading liability, the SEC Enforcement Division and its use of technology, and detecting
links (link prediction, data synthesis, and link-strength prediction) (Van Osselaer, 2017). This
article will be useful in presenting possible solutions to the weak areas of enforcing insider
trading laws and what the solutions will entail.
I have a large selection of news articles about the case. The Chicago Tribune published a
news article, “Timeline of Events in Stewart Stock Scandal,” explaining the timeline of the case
and the events leading up to case (Associated Press, 2005). This will assist me in ensuring that I
the chronology of my paper is correct. It will also be helpful to have to use as a quick overview
or reference of the timeline of events (Associated Press, 2005). The U.S. News & World Report
released the article, “Does Congress Have an Insider Trading Problem?,” which explains the
history of insider trading in the White House (Divine, 2020). This article will possibly assist with
me demonstrating that people of power may receive favorable treatment compared to others or
those who commit street crimes.
The superseding indictment (United States v. Martha Stewart, Peter Bacanovic) explains
the background and events that led to the counts of conspiracy to obstruct justice, making false
statements, and committing perjury (Superseding Indictment, 2003). This document explains the
Stewart’s and Bacanovic’s circumstances and her actions that led up to her committing the
crimes she was charged with. It also explains the preceding events for each action that led to
each criminal charge, such as the events that resulted in a charge of the scheme to defraud. There
are specifications under each count, which will assist me with describing how and why the
defendants were charged for each crime (Superseding Indictment, 2003). This document
provides information that will be useful when organizing my paper’s chronology and supporting
evidence. The other two appellate court documents will also provide information from each
defendant’s side and the actions of each individual (United States v. Martha Stewart and Peter
Bacanovic, 2004, 2006). These documents will supplement the sections of my paper that explain
the crime and investigation. I will continue to look for more trial documents to supplement the
resources that I currently have.
The most challenging part of the research so far has been the overwhelming amount of
news articles on the case, and the lack of relevant academic articles that would fit the focus that I
have for the paper. I chose articles from well-respected newspapers, but even then there were so
many articles, and many were repetitive. I am happy with the few that I have chosen to rely on as
they are factual and detailed. I now have five peer-reviewed articles to choose from for my
academic research, and I know that there are two or three among them that I will use in my paper
to add context to the case study.
References
Bhattacharya, U., & Daouk, H. (2002). The World Price of Insider Trading. The Journal of
Finance, 57(1), 75-108. doi: 10.1111/1540-6261.00416
Divine, J. (2020, August 6). Does Congress Have an Insider Trading Problem? U.S. News &
World Report. Retrieved: from https://money.usnews.com/investing/stock-market-
news/articles/does-congress-have-an-insider-trading-problem
Schoepfer, A., Carmichael, S., & Piquero, N. L. (2007). Do perceptions of punishment vary
between white-collar and street crimes? Journal of Criminal Justice, 35, 151-163.
doi:10.1016/j.jcrimjus.2007.01.003
Smales, L. A., & Thul, M. (2017). A game theory model of regulatory response to insider
trading. Applied Economics Letters, 24(7), 448-455.
doi:10.1080/13504851.2016.1200179
Smith, T., & Block, W. E. (2016). The Economics of Insider Trading: A Free Market
Perspective. Journal of Business Ethics, 139(1), 47-53. doi:10.1007/s10551-015-2621-5
Superseding Indictment. (2004) United States v. Martha Stewart and Peter Bacanovic, S1 03 Cr.
717 (MGC). S. Dist. New York. June 4, 2004.
Associated Press. Timeline of Events in Stewart Stock Scandal. (2005, March 4). Chicago
Tribune. Retrieved from https://www.chicagotribune.com/sns-ap-martha-stewart-
chronology-story.html
United States v. Martha Stewart and Peter Bacanovic, 323 F. Supp. 2d 606 (S.D. Ny. 2004)
United States v. Martha Stewart and Peter Bacanovic, 433 F.3d 273 (2d Cir. 2006)
Van Osselaer, A. P. (2017). Insider Trading Enforcement & Link Prediction. Texas Law Review,
96(2), 399-424. https://texaslawreview.org
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