Whatever the Truth, Martha Knew Better

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There's a larger issue at work with Martha Stewart that's being obscured by all of the publicity and phone records and former ImClone (IMCL - commentary - Cramer's Take) CEO Sam Waksal's dreadful Fifth Amendment and perjury plays.

The larger issue is, quite simply, the way things look. I think a reasonable person who talks to Sam Waksal all of the time -- which we know everyone agrees happened in Stewart's case, including Stewart -- doesn't want to be trading ImClone during the period she traded it. Let's understand that everyone involved in ImClone knew it was crunch time for the company's Erbitux entry and during crunch time, you just want to be "frozen," you don't want to be buying or selling stock. You just don't want the appearance of impropriety and you don't want to get yourself or your Waksal buddies in trouble.

Believe me, I have thought about these issues probably more than anyone on Earth. I know the downside to the possibility of taking action when you know something is happening. And I understand the pain you have when you are frozen; it is a nightmare, you can't believe it. You can't believe you have to watch your stock go down for the mere sake of appearances. But you do.

I think the Stewart case is like that. Think about it: Should you have a good "till cancel" stop-loss order entered, knowing that a big decision could be coming down for ImClone when you are close to ImClone? I would think that you would pull away from all orders so no one could ever accuse you of insider knowledge. (Technically, you can't have a GTC order for the Nasdaq, but you can leave standing instructions. I think she should have pulled those standing instructions for this period because she shouldn't have been trading.)

I know, I know, what would Martha Stewart know about all of this? Well, quite simply, a lot more than almost anyone else on the planet. She runs a public company (Martha Stewart Omnimedia (MSO - commentary - Cramer's Take)) and knows the rules on insider trading. She is a member of the NYSE Board of Directors. She was a broker at a place that she acknowledged was a tough shop, where the rules were known well.

In short, the reason this Stewart story really has legs has less to do with what she knew than what the heck was she doing being involved in the stock either way when it was obvious to the world that her name might surface if there turned out to be anything either way.

I have to tell you that people are very naive about trading records. Having had my records examined by the Securities and Exchange Commission, I can tell you that the presumption is one of guilt, not innocence. It is always like that, kind of like the way the IRS works.

That, too, was known to Martha Stewart.

In short, I really don't give a darn what she knew and what she didn't. She shouldn't have been trading. Her order should have been pulled. That's why she is in this jam. I have no doubt that she will escape from this clean and I have no doubt that she didn't get told "Dump Imclone fast, the FDA doesn't like our Erbitux applicaton." That would be too stupid even for Waksal to say.

But, the fact is she traded the darned stock. If she had been "frozen" we wouldn't know anything about her other than how Kmart sales are doing. Her trading got her into this jam and not only time will get her off the front pages.

That's the real issue here, not insider trading.

Random musings: You need a laugh? Here it is -- this is hysterical.

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James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS by clicking here. While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to [e-mail]. Click here to get Cramer's book, "Confessions of a Street Addict."