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INTRODUCTION
"Arrogance." That seems to be the public perception of why Martha Stewart received significant criminal penalties and suffered major setbacks in her business ventures for her role in the ImClone Systems, Incorporated ("ImClone") insider trading scandal. However, public perception is often misguided, if not completely wrong, and thus, further research is required to determine where the blame should be placed. After examining the factual circumstances surrounding the insider trading scandal, it becomes clear that Stewart's arrogance did play a considerable role in her convictions and setbacks. Nonetheless, there is one individual who could have, and should have, attempted to stop Stewart from lying about her actions: Stewart's pretrial counsel John Savarese.
This note contains three sections. The first two sections provide a background for Stewart's case. Part I lays out the facts of the case, and Part II presents a synopsis of insider trading law in order to lay the foundation for how Savarese should have advised Stewart in light of the penalties she faced. Finally, Part III focuses on a lawyer's role as an advisor as stated in Rule 2.1 of the Model Rules of Professional Conduct ("Model Rules"). In Part III, Rule 2.1 is broken into two components in order to identify the choices Savarese could have made based on his role as a legal advisor and to demonstrate how Rule 2.1, if followed closely, would have allowed Savarese to have been an effective advisor.
I. WHAT HAPPENED . . .
In December 2001, Martha Stewart's friend Sam Waksal, CEO of a biotech company called ImClone, learned that the FDA was going to reject ImClone's application for approval of its cancer drug, Erbitux.1 Waksal attempted to call his stock broker, Peter Bacanovic at Merrill Lynch, but Bacanovic was on vacation.2 However, Waksal did speak with Doug Faneuil, Bacanovic's assistant, and told him to sell Waksal's stock in ImClone.3 Following this exchange, Faneuil called Bacanovic and explained the situation.4 Bacanovic, who also served as Stewart's broker, told Faneuil to call Stewart and give her the story.5
Faneuil spoke with Stewart telling her that he thought ImClone's share price was going to drop because Waksal was trying to cash out.6 Upon learning this, Stewart decided to sell all 3,928 of her shares in...