Martha Stewart

Three good reasons to leave Martha Stewart alone

Let the diva be!

Martha Stewart was arraigned June 4th in federal district court in Manhattan on charges of conspiracy, obstruction of justice and securities fraud (NY Times). The US attorney said in a news conference announcing the charges, "This criminal case is about lying — lying to the F.B.I., lying to the S.E.C., lying to investors."

Martha says it isn't so.

The facts, as I understand them, are these:

  • On December 27, 2001, Martha Stewart received a tip from her broker (possibly through her broker's assistant) that Sam Waksal, CEO of ImClone, and his family were selling all their shares in ImClone.
  • Later that day, Martha sold all 3,928 of her shares of ImClone stock, the gross proceeds of which were around $200,000.
  • The following day, after the market closed, ImClone announced that the Federal Drug Administration (FDA) had refused to accept its application for the review of a cancer drug, Erbitux. The price of ImClone stock plummeted 18%. stock chart

Martha's just an easy target: It's a pretty simple case, she's a celebrity who is said to be tempermental and often disagreeable, and she's a woman who, like it or not, has clawed her way to the top from humble beginnings. What other CEO gets referred to as a "diva"? (At least in public.)

Even if... Even if Martha did get the information, and even if that tip from her broker does constitute "insider information," going after Martha is all wrong.

• In the world of corporate muckety-mucks, the amount of money involved is chicken feed. The sale only netted $45,000. That's a lot of money to most of us, but put it in perspective: Ted Turner just sold 10 million shares of AOL for proceeds of $130,600,000. That's millions, not thousands. Let's face it, Martha's deal is less than the cost of a new Lexus (GS 430 SportDesign: $48,400 MSRP)

• Say she did lie. If the government prosecuted everyone who told a lie, there'd be nobody left to act as jailers. Bill Clinton told a whopper — "I did not have sex with that woman, Monica Lewinsky" — and he got off scott free.

• She hurt nobody. After all, that's what the Republicans are saying in defense of Bill Bennett, the supposed paragon of virtue who turns out to be a compulsive gambler.

No, there are good reasons to leave Martha alone. Here are three for starters:

1. Ken Lay, Enron

Kenneth Lay

As CEO, Lay presided over the rise and fall of Enron, a company that went from darling of Wall Street to poster child for corporate fraud and accounting chicanery. During the company's decline, Lay and other high executives unloaded piles of Enron stock while prohibiting employees from trading the Enron shares in their 401Ks.

When the company filed for Chapter 11 bankruptcy protection in December of 2001, the biggest such bankruptcy in history, billions of dollars of shareholder equity were wiped out. As early as February of 2002, the company web site posted a notice that, whatever the eventual outcome of the bankruptcy filing, existing shares of the company would have no future value. That notwithstanding, there was a lively trade in Enron shares (ENRNQ), and I personally sold mine in May, 2003, for the princely sum of $0.058 per share, yielding a loss on my investment of 99.91776% (It's fair to ask who's the bigger fool — me for not selling while the shares had some value left? or the person who just bought them when they clearly have no value?)

Lay, once bosom buddy of George W Bush and major contributor to Republican campaigns, remains unindicted of any crimes.

2. Bernie Ebbers, Worldcom

Bernard Ebbers

Ebbers presided as CEO of Worldcom until accounting irregularities came to light, so far admitted to be at least $11 billion of irregularities. On July 21, 2002, WorldCom filed for Chapter 11 bankruptcy protection, wresting from Enron the title of largest corporate bankruptcy in history. Full details of Ebbers' involvement in cooking the WorldCom books are still coming to light, but a report due out June 9th will say Ebbers was present at meetings to discuss how to make revenues seem larger than they really were.

As in the Enron case, Worldcom's reorganization plan leaves shareholders holding the proverbial bag: In an 8K filing with the SEC on April 15, the company says: "On the effective date, all WorldCom equity interests shall be extinguished."

In the interests of full disclosure, I do not own, nor have I ever owned, any Worldcom shares.

Ebbers has not been indicted of any criminal offense, to date.

3. Richard Scrushy, HealthSouth

Richard Scrushy

Scrushy was CEO of HealthSouth from the time he founded the company in 1984 until he was ousted after charges of accounting fraud were made against the company. Criminal charges allege accounting fraud of $2.5 billion dating to 1994, and civil charges by the SEC allege the company inflated revenue by $1.4 billion since 1999.

So far, 11 people have pleaded guilty, including 5 former chief financial officers (CFOs) who have implicated Scrushy in the fraud (

The company is feverishly slashing jobs and paring away corporate excesses, such as the reducing the company's fleet of corporate aircraft from thirteen to four, to stave off bankruptcy (Birmingham Business Journal).

Again, in the interests of full disclosure, I do not own, nor have I ever owned, any HealthSouth shares.


Not enough reasons? Remember Tyco? Remember Jack Welch whose perks from GE continued after he left the company? The list goes on and on.

Fine, throw Martha in the slammer

But just make sure you take care of the other scoundrels first! The Martha indictment is just a sideshow to divert attention from the fact that there is a long list of other miscreants who have not been indicted for far worse offenses, offenses that have actually harmed large numbers of people. When I see Kenny, and Bernie, and Dick all behind bars, we can discuss Martha. Until then, leave the poor woman alone!

True insider trading

If you really want to talk about insider trading, look at Halliburton! Nobody yet knows how many gazillions that sweetheart deal in Iraq is worth, and the contract wasn't even put out for competitive bids!