Martha Stewart’s name and face was splashed all over the newspapers, flashed from almost every prime time newscast and talked about by every media as her name was involved in the trade fraud scandal with ImClone pharmaceutical company. Her celebrity status had given much media attention even to a minor white collar crime trial.
High status women involved with corporate criminal cases rarely get that much media hype but Martha Stewart had one of the most covered arrest and trial of a female in American media history. She was referred to as “mediagenic” because of the extensive press coverage her case had received mainly attributed to her “domestic diva” public persona (Jacobs 2006).
Here was a woman admired by most women in America, especially those who stay at home to take care of the household. However, despite the domestic front that she had portrayed all those years, she still had what most women do not have in common reality. She had power and control being the former Chief Executive Officer of Martha Stewart Living and owning some stocks in the ImClone Company.
Despite the control and power that she had had at that time, she chose to use it to get ahead in the corporate world that had forever tainted her name as an American Icon of housewife domesticity. The law does not excuse anyone; it does not excuse someone for their celebrity status, not for their bank accounts, not for their gender and neither for their pleasant public image.
Stewart acted upon the information that the Food and Drug Administration was not going to approve an application submitted by ImClone that could result to a large lost in the stock market (Jacobs 2006). Her orders to sell her stock before the public announcement of that application denial had taken place reflect the crime she had committed that can be rooted out of sheer dishonesty and greediness.
The case of Martha Stewart more than being just a minor case of fraud constitute to how she had reacted when given information about the ill-fate of the company. Instead of acting in good will and in an honest matter, she took advantage of it just like the other people in authority would do to save their own selves from a nasty fate of the companies they were involved in. She made up false stories about have a deal beforehand with the people involved even before the new came out regarding the declined application (Jacobs 2006). However in the end, she was found guilty by a jury of her own peers. She was guilty to all counts of fraudulence under the law.
The importance of an analysis of this case points back to the basics of business ethics and the lessons that must be learned from Martha Stewart’s mistake. It is about not underestimating what a person can do regardless of her race, status in society and public image.
Opening Video Presentation
The presentation would be started with an old video clip of the old Martha Stewart Show in 1999, a couple years before trouble boiled for Stewart (YouTube.com 1999). Reminiscent of the “old Martha,” this show was a Halloween episode wherein she was trying to make “Halloween as scary as could be” for the treat or tricksters. It was a picture of the domestic Stewart in one of the holiday specials that wanted to encourage moms to take Halloween a notch up in uniqueness for their own homes. This was at a time where stock and fraud scandals may have only been seen through her home-produced Halloween crystal ball.
Much more, little did the Martha fans knew of the fate that was to come upon domestic diva Martha Stewart.
The Beginning of the End
It was in December 2001, when new broke out internally how the Food and Drug Administration (FDA) had rejected the approval of the drug ImClone is developing for cancer (Jacobs 2006). The CEO of ImClone, Sam Waksal attempted to have his shares sold before FDA would announce the news publicly the day before. Peter Bacanovic, Martha Stewart’s personal stockbroker got hold of the news and messages her that Waksal was selling large blocks of his stock. Unable to reach his client, he told his assistant Doug Faneuil to handle return calls for Stewart. When Stewart spoke to Faneuil, she instructed him to have her holdings sold on December 27, 2001 (Jacobs 2006).
The picture below show Stewart with her personal stock broker Peter Bacanovic a long time before this whole ordeal dawned on them.
Show photograph of Peter Bacanovic
A photograph of Martha Stewart is shown when she was with Peter Bacanovic, Martha Stewart’s Personal Stock Broker (Tully 2006) See Appendix A. It was during their happier time. Photograph is part of an article regarding ethical and social responsibility.
The day after Stewart’s holdings were sold, FDA announced the rejection of the ImClone application that resulted to the 18 per cent devaluation of the ImClone shares (Jacobs 2006). Stewart earned an estimate of $45,000 from the sale the day before (Jacobs 2006). The noticeable drop in the value of ImClone shared and the large sales attributed to Stewart’s transaction was suspected of insider trading activity that violated the law.
Bacanovic told the investigators that a pre-existing agreement had existed between him and Stewart regarding the selling of the shares when it has reached a certain price level (Jacobs 2006). Stewart actually agreed that such agreement was existing that would later be judged false by the jury. From where the government stood on the issue of the alibi Stewart and Bacanovic stood by, they believed that the idea of a pre-existing agreement was a mere cover up to the insider trading activity that occurred the day before FDA made their public announcement (Jacobs 2006).
The indictment for Stewart listed one count of conspiracy to obstruct justice, obstruction of justice, securities fraud and two counts of making a false statement (Jacobs 2006). The time frame from the arrest to the trial reflected how Stewart stood her ground that she thought the whole thing was ridiculous (Jacobs 2006). The trial had taken so long due to the long line of paper trail the investigators had to trace in order to make a strong case against Stewart. Part of the evidence gathered was the phone log that Stewart had received a message regarding a problem that Waksal had with ImClone shares that came from Bacanovic (Jacobs 2006). This pointed out how Stewart was well aware what would happen to her shares if she did not pulled it out then and the source of information she had was illegally used because it was not made public yet. Stewart was sentenced to five months imprisonment and five months of home confinement, she was also fined with thirty thousand dollars (Jacobs 2006).
Read excerpt from article
The article “Martha Stewart indicted on nine counts stemming from insider-trading scandal” by the Associated Press reported on the earlier parts of the downhill slope Stewart would be on a year into the investigation. The article revealed how there was evidence on deletion of important files that prove Stewart had communication with Bacanovic regarding the information about the potential stock share price fall from ImClone. It also pointed towards the alterations Bacanovic had made on his personal notes to portray pre-existing agreements he had with Stewart to sell stock shares once it reached $60.
The excerpt from the article from the Associated Press revealed dubious conduct coming from the part of Stewart when extensive investigation took place. If there was nothing to hide, nothing should not have been deleted or altered. In a white collar crime, especially when it involves insider trading, it can be very difficult to build a case. Paper trail investigations take long time to complete. It is through suspicious-looking documents like that presented in Stewart’s trial that make a conviction.
Justice for Celebrities and Plain Business Ethics
A lot of protests and editorials came out regarding the resolution of the Martha Stewart trial. The defense for Martha Stewart always spoke to the public about how she was picked on either because she was a woman, she was rich and she made it in an industry wherein only men were successful (Associated Press 2003).
Most of the people saw her indictment as a sham (Koch 2004). Most wanted to believe that this sweet lady who had a prim and proper image and taught women what they could do with their leftovers and other things they can find in their houses cannot be involved in something so dishonest, to say the least. How could she? She was an American Icon for housewives and women everywhere. She stood for women empowerment as she was a woman who was making it in the corporate world.
Majority of the reports about the trail perceived her as the victim of a government trying to bully this woman just because of everything she stood for and achieved. They taught that the trail may not be fair because she was a celebrity or that she was rich. They criticized the system for making an example out of Martha Stewart when others have done worst. However, no matter what people say and how the media had perceived her; the bottom-line still rested with the jury that would judge her guilt.
In the end, she was found guilty. A lot may turn that into a persecution of someone who was punished just because she was a celebrity, and there was a fear that people would think they were treated differently or were afraid of being accused of giving special treatments for celebrities under trial.
The point was she was found guilty by a jury of her peers. There were pieces of strong evidence that pointed to her true motive for selling the stocks the day before. Justice was served, not because she was a celebrity picked upon for the threat of being above the law. It was served because it was what the evidence has proven. Some would even say, others have done worst things. But that is beside the point. It does not mean that when others get away with it, she should too. That is just not justice.
If it was people would be able to break minor things under the law and think they could get away with it because others had committed worst crimes or that people can commit crimes if it was classified under a white collar offense. She broke the law and celebrity or not, she deserved to be punished for it. She was just unfortunate that the judicial system worked in her case as it did not for others. According to her prosecutor, “Martha Stewart is being prosecuted not because of who she is, but what she did” (Associated Press 2003).
The crimes attributed to her were related to insider trading. This was difficult to prove because it is a complicated crime to commit. The Securities and Exchange Commission (SEC) does not have clear provisions as to who would be indicted with such a crime. Although, it can be settled that Stewart was not the insider, however, she did benefit from the information that came from the insider and used it illegally.
More than anything else, she lied. She lied, not just to the public, but to the defenders of the law. Insider trading was done when someone from the inside had fed someone information that would affect the rise and fall of stock share prices. If this information is not made public, it is considered illegal by the government.
It happened at a time wherein the country was witness much corporate scandals that it was reflective of the condition of the moral fiber of American corporations. In a time wherein she served as a role model for being a strong, successful business woman with good business ethics, she was convicted guilty of fraudulent activities. If a person sells his or her stock shares, having knowledge that its prices would soon plummet, that is just being dishonest and being a cheat.
Business ethics operate under principles of honesty. Deceit comes even from withholding the truth. When Stewart and his broker withheld the truth from the buyers of Stewart’s stock shares, they were being deceptive. An illustration of this would be selling a can of beans to someone that would expire the next day. There would be no ethical dilemma if the buyer of the can of beans is aware that it would expire soon, but concealing this fact is fraudulent action.
Media Coverage of Trial and her Celebrity Status
During that time, Martha Stewart was the bet of the press to be the victor of the stock scandal spectacle. Everyone was rooting for her. The press was so sure that she would win the case that it was the general theme of their reporting (Koch 2004). She was a victim and she would be portrayed as such against the big bad government and prosecution bullies.
In the period the trial was occurring, reporters did not even doubt Stewart’s innocence, or if they did, they doubted she would be convicted (Koch 2004). Their concern flew to trivial things like the other people in the courtroom; there was even an inside debate among the press people as to which juror loved Stewart the most (Koch 2004). Nevertheless, as they were spending their time arguing as to the jurors whom they assumed were going to let Stewart go free and blameless, their courtroom psychology miss the real story (Koch 2004).
They missed the fact that most of the Americans still believe lying is wrong and value honesty very highly (Koch 2004). They missed the point that even if the culprit was a feminist icon and a domestic diva, or even if she was rich, the American people cannot excuse the fact that was plainly dishonest in her stock share activities.
People, most especially Stewart fans, were made to believe Stewart was going to win the trial in their reporting. It made it very difficult for the public to believe that it was actually the other way around. The attachment of the press to Stewart made room for more conflicts in the decision of the jury of Stewart’s guilt. In the end, the people realized at the same time that the press realized it. The evidence presented was clear and the justice was simple to impose (Koch 2004). The simple truth was that Stewart lied and she really thought she would get away with covering up her tracks (Koch 2004). The story shown how the biases of the people and the failure of the press to see the real story and not assume it reflected the reality of the Martha Stewart trial. The original crime involved the abuse of an insider’s status, in that same case, the press people were as guilty as Stewart was (Koch 2004).
Show Video Clip of Martha Stewart’s Guilty Verdict
“Martha Stewart Guilty” was shown on CBS News on March 5, 2004 reporting how Martha Stewart was found guilty on all four charges of stock fraud. Anchor John Roberts talked to CBS correspondent Anthony Mason and legal analyst Andrew Cohen regarding the verdict that just came in. People were surprised at how the conviction turned out. But it was mostly attributed to too much of the media’s slant that the trial was going in favor of Stewart.
Show Video Clip of “Martha” to close presentation
The “Martha” show was a restructured format of the “Martha Stewart Living Show” that she had before she was indicted and convicted in her stock share scandal. It illustrated the picture of Stewart after the ordeal of serving her sentence (YouTube 2006).
Even if this show tries to encapsulate all that was lost for Stewart. In reality, her dishonesty and the scandal she had been involved in would be imprinted in the minds of the audience. She would never be just the domestic diva; she would be someone who got involved with fraud and was convicted for it. The lesson of Stewart’s story is the most important asset in business is integrity.
CBSnews.com (2004). “Martha Stewart guilty.” Retrieved on November 27, 2007, from http://www.cbsnews.com/sections/i_video/main500251.shtml?channel=i_video&clip=http://www.cbsnews.com/media/2004/03/08/video604646&sec=201&vidId=201&[email protected][email protected]$Day&hitboxMLC=national.
Jacobs, M. (2006). “Loyalty’s reward – a felony conviction: Recent prosecutions of high-status female offenders.” Fordham Urban Law Journal (33)3, p. 843+.
Koch, E. (2004). Martha guilty? Surely you jest. Columbia Journalism Review (43)1, pp.36+
“Martha Stewart Halloween of fail.” (1999). YouTube.com. Retrieved on November 28, 1007 from, http://youtube.com/watch?v=2UwsMWU0Rq8.
“Martha Stewart indicted on nine counts stemming from insider-trading scandal.” (4 June 2003). Associated Press. Retrieved on November 27, 2007, from http://www.courttv.com/people/2003/0604/marthastewart_ap.html.
“Renee Goldsberry on Martha Stewart.” (21 April 2006). YouTube.com Retrieved on November 28, 2007, from http://youtube.com/watch?v=KOB7pAgtt3E.
Tully, D. (2006). “Ethical and social responsibilities of business.” Contemporary Business. Retrieved on November 27, 2007, from http://www.wctc.edu/busocc/cb/esrb.htm.
Martha Stewart with Peter Bacanovic
Martha Stewart indicted on nine counts stemming from insider-trading scandal
June 4, 2003
NEW YORK (AP) — Martha Stewart, the exemplar of “good things” who built an empire as an icon of tasteful living, was indicted Wednesday on securities fraud and obstruction of justice charges that could result in a prison term.
The indictment also charged Stewart with conspiracy and making false statements and her stockbroker, Peter Bacanovic, with perjury and obstruction of justice.
Stewart and Bacanovic pleaded innocent before a federal judge to all charges.
“This criminal case is about lying — lying to the FBI, lying to the SEC and investors,” U.S. Attorney James Comey said. “That is conduct that will not be tolerated. Martha Stewart is being prosecuted not because of who she is, but what she did.”
Stewart, 61, has denied wrongdoing in the ImClone stock sale. She claimed to have had an arrangement with her broker for the automatic sale of the stock when it dropped to a certain price.
Stewart, wearing a pale khaki-colored trench coat and carrying an off-white umbrella, arrived at the federal courthouse in Manhattan just before noon, breezing past a crowd of reporters and camera crews without a word.
The scandal surrounds Stewart’s sale of 4,000 shares of biotech drug maker ImClone Systems Inc. on Dec. 27, 2001 — the day before the government issued a disappointing report on an ImClone drug, sending the company’s stock price tumbling.
In a statement, Stewart attorney Robert Morvillo said the home-decorating maven had done nothing wrong and asked why the government would file the charges after a year and a half of investigation.
“Is it for publicity purposes because Martha Stewart is a celebrity?” he said. “Is it because she is a woman who has successfully competed in a man’s business world by virtue of her talent, hard work and demanding standards?”
If convicted of all counts, Stewart faces up to 30 years in prison and $2 million in fines, although the sentence would likely be much less under federal guidelines.
In a related action, the Securities and Exchange Commission filed a civil suit in Manhattan seeking to bar Stewart from being in charge of any public company.
The SEC suit also asks the court to order Stewart and Bacanovic to pay more than $45,000 total — the losses the government says Stewart avoided by selling ImClone in advance of the disappointing news.
The criminal indictment says Stewart unloaded her shares of ImClone based on illegal inside knowledge that the family of ImClone founder Samuel Waksal was planning to sell its shares ahead of the government news.
Stewart went so far as to delete a computer log of a phone message in which Bacanovic told her he thought ImClone was “going to start trading downward,” according to the indictment.
The government also said Bacanovic altered his personal notes about Stewart’s portfolio after he learned the government was investigating her, trying to create the impression he and Stewart had a prior agreement to sell ImClone if it fell below $60 a share.
The charges spell not just serious legal headaches for Stewart, but a crisis for her company, which has struggled with a public relations nightmare that has grown since she became involved in the stock scandal a year ago.
A fascinated public has watched Stewart try to keep her highly profitable public persona intact, doling out advice on decorating or preparing a tasty dinner on a television program, while news headlines have focused on the criminal cases of close friends or her legal troubles.
The scandals had affected earnings at her company, Martha Stewart Living Omnimedia, which have been slumping. Revenue in the first quarter of the year dropped 15 percent from the same period a year earlier.
Stewart told The New Yorker magazine in January she has lost about $400 million because of the company’s declining value, legal fees and lost business opportunities. And shares of her company, Martha Stewart Living Omnimedia, have fallen from $19 to just over $9.
She is a friend of ImClone founder Samuel Waksal, who is to be sentenced next week after pleading guilty to six counts in the insider-trading scandal.
Waksal could get to six to seven years in prison. His defense team is seeking a lighter sentence, and prosecutors are seeking a heavier one — claiming Waksal cheated ImClone shareholders as far back as 1986.
Waksal has admitted he tipped off his daughter Aliza to sell ImClone stock before it plummeted on the bad news. But he has not implicated Stewart, and his plea was not part of an agreement to cooperate with prosecutors.
Stewart’s sale of the 4,000 shares came one day before the Food and Drug Administration announced it would not review ImClone’s application for approval of Erbitux, which the company had touted as a promising cancer drug. ImClone’s stock subsequently plunged.
Stewart has maintained that she had a standing order with her Merrill Lynch broker, Bacanovic, to sell the shares if the stock fell below $60.
Just this week, a new study conducted in Europe, found Erbitux worked just as well as a cancer treatment as a disputed study conducted earlier, and sponsored by ImClone, said it did.
Analysts have said an indictment could seriously damage Martha Stewart Living Omnimedia — a company for which Stewart herself is CEO, chief stockholder, inspiration and best-known spokeswoman.
The company produces Martha Stewart Living and Martha Stewart Weddings magazines, a newspaper column, a television show and the popular Martha Stewart Everyday line of home products, like towels and sheets.
Martha Stewart Living Omnimedia reported sales of $295 million and a staff of 580 last year. It includes publishing, television, merchandising, Internet commerce and direct mail.