Notorious Insider Trading Cases: Wiggin, Boesky, Winans & Stewart

Insider trading occurs when someone buys or sells a publicly traded company’s stock using nonpublic, material information. The Securities and Exchange Commission (SEC) investigates these cases to maintain fair markets. Detecting insider trading can be challenging, but it often involves well-known figures and draws media attention. This article highlights four notable cases: Albert H. Wiggin after the 1929 crash, Ivan Boesky’s 1980s scandal, WSJ columnist R. Foster Winans, and Martha Stewart’s ImClone situation.

Albert H. Wiggin's Controversial Stock Shorting 

After the Wall Street Crash of 1929, it was revealed that Albert H. Wiggin, the respected head of Chase National Bank, had shorted more than 40,000 shares of his own company.

Using companies that were owned by his family to hide the trades, Wiggin built up a position that actually gave him a vested interest in running his company into the ground. At the time, there were no specific rules against short-selling stocks of your own company. So, in the aftermath of the 1929 crash, when many different investors exited their positions of Chase National Bank stock at the same time, Wiggin legally made over $4 million. In addition to the profits he made from the short-selling of his own company's stock, Wiggin had also accepted a pension of $100,000 a year for life from the bank. He later declined the pension as a result of protests from the public and the media outcry.

Wiggin was not the only corrupt actor during this time; the Securities and Exchange Act of 1934 was passed in part as a response to the widespread corruption that was revealed in the aftermath of the crash. It was intended to increase transparency in the financial markets and decrease incidents of fraud or manipulation. In fact, it has been said that drafters of the Act nicknamed Section 16, which addresses various regulations that attempt to prevent and prosecute incidents of insider trading, the anti-Wiggin section.

Ivan Boesky and the 1980s Insider Trading Scandal 

Ivan Boesky was an American stock trader who became infamous for his role in an insider trading scandal during the 1980s. This scandal also involved several other corporate officers, employed by major U.S. investment banks, who were providing Boesky with tips about upcoming corporate takeovers. Boesky had his own stock brokerage company, Ivan F. Boesky & Company, and starting in 1975 when he opened his firm, he made vast amounts of money speculating on corporate takeovers.

In 1987, after a group of Boesky's corporate partners sued Boesky for misleading legal agreements detailing their partnership, the Securities and Exchange Commission (SEC) began investigating Boesky. It was later revealed that he was making his investment decisions based on information received from corporate insiders. These included Michael Milken, the Wall Street "junk bond king," and the investment firm Drexel Burnham Lambert. Both the firm and Milken also became the subjects of SEC investigations.

Boesky ended up cooperating with the Securities and Exchange Commission (SEC) and became an informant, providing information to the SEC, which eventually led to the case against Milken. Boesky was convicted of insider trading in 1986. He received a prison sentence of ​3.5 years and was fined $100 million. Although he was released after only two years, Boesky was permanently banned from working with securities by the SEC. He died at 87 on May 20, 2024.

R. Foster Winans and the Wall Street Journal Scheme

R. Foster Winans was a columnist at the Wall Street Journal who wrote a column called "Heard on the Street." In every column, he would profile a certain stock, and the stocks featured in the column often went up or down according to Winans' opinion. Winans arranged a deal where he leaked the contents of his column—specifically the stock that he was going to detail—to a group of stockbrokers. The stockbrokers would then purchase positions in the stock before the column was published. After the brokers were able to make their own profits, they allegedly gave some of their gains to Winans in return for his intelligence.

Winans was eventually caught by the SEC. His case was tricky because the column contained his personal opinions, rather than material insider information. However, the SEC eventually convicted Winans based on the claim that the information about the stocks contained in the column belonged to the Wall Street Journal and not to Winans himself.

Martha Stewart, ImClone, and the FDA Tip-off 

In December 2001, the Food and Drug Administration (FDA) announced that it would not approve a new cancer drug called Erbitux from the pharmaceutical company ImClone. Because it was expected that this drug would be approved, it represented a major portion of ImClone's future plan for growth. As a result, the company's stock dropped rapidly. While many investors experienced losses as a result of the drop, family and friends of Erbitux CEO Samuel Waksal were unharmed. The SEC later discovered that prior to the announcement of the FDA's decision, numerous executives had sold their stock based on the instructions of Waksal, who had also attempted to sell his own stock.

In fact, just days before the announcement, the American retail businessperson Martha Stewart had sold around 4,000 shares of the company. At this time, the stock was still trading at a high level and Stewart made nearly $250,000 on the sale. After the announcement, the stock price dropped sharply over the following months.

Stewart claimed to have a pre-existing sell order with her broker, but she was convicted of insider trading for having sold her shares after receiving a tip that ImClone's stock was likely going to drop. Stewart eventually resigned as the CEO of her own company, Martha Stewart Living Omnimedia. Waksal was arrested and sentenced to more than seven years in prison and fined more than $5 million in penalties. In 2004, Stewart and her broker were also found guilty of insider trading. Stewart was sentenced to a minimum of five months in prison and fined $30,000.

The Bottom Line

Insider trading happens when someone buys or sells a company’s stock using confidential, non-public information. This makes it illegal, but often difficult to detect, especially in high-profile cases that attract media attention. Notable examples include Albert H. Wiggin, Ivan Boesky, R. Foster Winans, and Martha Stewart, all of whom drew significant public and media scrutiny.