In Defense of Martha (but how come Global Xing's Winnick skated?)

Rarely before has a successful businesswoman, or businessman for that matter, with an upstanding reputation been subject to a thrashing like the one Martha Stewart has been receiving in the media.

Ever since suggestions surfaced that Ms. Stewart may have engaged in insider trading in shares of ImClone, the editors and owners of the New York Post, the Daily News and now The New York Times, with its Sunday front page, have been having a Schadenfreude field day at her expense. There is something troubling about this cultural witch hunt, the purpose of which seems to be to burn this diva of domesticity at the stake and worry about the facts later.

About those facts: Yes, Ms. Stewart sold almost 4,000 shares of ImClone on Dec. 27, the day before the Food and Drug Administration rejected ImClone’s application for a cancer drug. Yes, the biotechnology company’s chief executive officer and controlling shareholder was Samuel Waksal, a close friend of Ms. Stewart’s, who himself was arrested this month on insider-trading charges. And yes, it does look bad for anyone connected to Mr. Waksal, whose family also sold ImClone stock during this period. But it is grossly unfair to put Ms. Stewart in the same category with sleazebags like Boesky, Milken and now Winnick and Waksal.

Whether Ms. Stewart is or is not guilty of insider trading, she has been robbed of the benefit of the doubt and convicted in the press before she has had a chance to defend herself.

Section 10b-5 of the Securities and Exchange Act of 1934 states that insider trading is a felony for which you can go to jail—but only if you are found to be guilty beyond a reasonable doubt. In a civil suit, the bar is lower: A finding of liability requires merely a preponderance of evidence. From what is publicly known about Ms. Stewart’s sale of ImClone, there is significant reasonable doubt in her favor. For example, to take just one possible scenario, let’s suppose that Ms. Stewart’s broker at Merrill Lynch, Peter Bacanovic, received a call from Mr. Waksal, who told him about the F.D.A.’s imminent announcement that the drug would not be approved.

And suppose that Mr. Bacanovic did not tell Ms. Stewart about the F.D.A. finding, but only that it was time to do some year-end selling for tax purposes, and that he’d recommend selling ImClone—trying to show his clients he’s just a very clever broker and very wired in. If that were the case—that neither Mr. Waksal nor another insider nor her broker tipped Ms. Stewart off about the F.D.A. ruling—she’s in the clear, and there would be a very strong case for her innocence.

And while it now appears that there was no logged stop-loss order, frequently a client will give a broker a verbal stop-loss, which means that the broker has to keep an eye on the price of the stock, and when it falls beneath a specified price, he proceeds to sell it. Or Ms. Stewart may indeed have placed a stop-loss order and Mr. Bacanovic chose not to log it, believing he would get a better execution if he just watched the price of the stock, and if it dipped below the target price, he would sell.

In any case, let’s remember that this broker from Merrill Lynch, who has been put on administrative leave, will clearly be given immunity and then be expected to testify against his client—if for no other reason than to save his backside.

But newspapers and TV reporters are skipping over any reasonable doubt and are piling on, giving Ms. Stewart more coverage than Enron and Andersen put together. Remember Gary Winnick, the C.E.O. of Global Crossing who sat at Michael Milken’s feet for years and who sold more than a half a billion dollars of Global Crossing common stock while the company was going down the toilet—where are those indictments and collateral media coverage?

Meanwhile, Ms. Stewart’s true guilt or innocence appears to be secondary to the frenzy accompanying her every move. Congress and the Securities and Exchange Commission are looking into all of Mr. Waksal’s business dealings following his indictment, and will presumably shed further light on all the ImClone trades. If Ms. Stewart is implicated in insider trading, justice will take its course. If she is exonerated, one wonders how much ink her current accusers will spill in her favor.

The article makes some good points.

I suspect that, because Martha is a high profile person and the masses are howling for blood, that she will be prosecuted, convicted, and sent to the pen for several years.

Ken Lay and the slime who run Art. Andersen and Worldcom will probably never see the inside of a criminal court room.

Ahh, well. We have a legal system, not a justice system...a fact that one can see proven daily.

The fact that she propped herself up and sold herself as this morally superior woman in charge of everything in her life and then used that to sell her products to the sheep is what is the media selling point right now,she misrepresented herself.The public already expects that from rich businessmen/women,but they aren't on the tv telling you using hand made doilies for toilet paper is a good thing,especially if they are her brand....
If you have ever heard a parent or grand parent say something like they were considering stenciling the driveway or a man hole cover you would understand why I would love to see her fall down as hard as possible off her imported wicker soap box,her type of marketing is scary,reminds me of Oompah(oprah)....that's another one I would like to see burst into flames someday.

And this is precisely why she will be prosecuted, convicted, and sent to prison. She is an ideal target in the present little morality play...the public delights in seeing the (supposedly) morally superior person who is (purportedly) in charge of everything in their life get taken down a notch or three. Have no fear, you will get your wish.

That being said, if acting morally superior and/or snooty was a crime, we couldn't build enough prisons. People love to cast themselves in a holier than thou light...I guess they always have. My objection to all this is that pandering to (and even using) this trait seems a lot less objectionable than Ken Lay's conniving to lock employees into a dying stock even as he sold off his position, and also less deplorable than Worldcom's lies which are devastating a lot (17,000+ employees, plus untold numbers of investors) of people.

Justice would, I believe, be better served if Ms. Stewart were forced to disgorge her profits and pay a hefty penalty. And the folks who defrauded thousands through their financial chicanery were placed on the criminal docket.

It is really quite simple.

Anyone who has experience with drug approval knows what the rules are. When yoiu file an application you know if it will be accepted. It either meets the rules or it does not.

Martha and her boyfriend had to know that this application was going to be turned down. So why did they file an application that was going to be turned down? The prime reason is to make big bucks. First file an application you know won't make it. Hype the stock and then sell out before the application is rejected. It is very hard to prove that they knew the application would be turned down. So it is the perfect scam.

But the cops did in this situation what they often do in similar situations, When they can't convict a person of the real crime, they get them on another rap. Thus Al Capone never went to jail for Murder, he went to jail for income tax evasion.

Martha Stewart and her main squeeze won't go to jail for making big bucks off an application they knew would fail. They will go to jail for insider trading. It is interesting that people who plan the perfect rip off, often stumble over lesser crimes. As my Dad used to say, if we can't get you for the perfect crime, you are going to get 20 years for jaywalking.

When you look at the motivation of Enron and Worldcom you will find companies expected to do great who failed. The CEO's CFO's and boards are under great pressure to perform so they break the law to buy some time for things to "turn around". They did not turn around. That has happened many times. Their motivation was not to steal, it was to make the company a success. They did illegal things trying to make that happen. That should be punished big time. But not as much as an intended rip off.

The Martha Stewart deal has the deep stench of a rip off created just for the suckers. It turns out in this case most of the suckers were the beautiful people.

When you rip off the beautiful people you go to jail!

Great outline. Hollywarped'll love it.

"Perfect Scam," sequel to "Perfect Storm."

Hmmmmm. Well, ok, I'll buy that, unless we find Stewart actually conspired to defraud shareholders, to knowingly deprive them of information she used in order to cash out.

Huh? I'm no fan of Martha Stewart - never paid any attention to her - but when did she claim she was morally superior to anyone? Because she makes a nice table arrangement? Get real.

As far as her selling products to people, thats usually called capitalism and the free market. Stewart offered her stuff and people bought it. I have no problem with that if people were satisfied with what they bought and what they paid for it. Whats the beef here?

The possible insider trading of stock is another matter, a criminal one, and has nothing to do with her home goods and other enterprises although they are all suffering in the market, as is to be expected when bad publicity hits the woman who has her name on the products. That's also the free market.

I just have to agree with the article that claims Stewart is being tried and convicted without evidence or trial. The notion that people want to bring her down because she was 'morally superior' is absurd, in my opinion. She's rich, talented and maybe smug and overbearing out of the public eye but let's forget 'morally superior', O.K.? Being artistic and ambitious and ultimately successful does not make one morally superior to anyone.

morally superior woman in charge of everything in her life
There is no one,I repeat NO ONE who could live the lifestyle SHE ADVERTISES she does without the help of dozens,she is a fraud,both morally and it appears, intelectually also.She got greedy.
Taking people out of the game is part of capitalism also.
I have seen what Marthas marketing does to people,you missed the part about stenciling the driveway(which was a joke),my Mom was on a Martha kick the last 5 yrs,I am happy it is now over.Mom is also recovering from being a Democrat for her whole life.It's all a good thing.
Do a search on Martha here,you'll also turn up a story on some lanterns made in China being recalled,with her name on them.

Ah, I think the "help of dozens" you mentioned are called EMPLOYEES. Having employees does not make you a fraud, it makes you an...employer. She's a big one and alot of people are going to end up out of work over this whole thing. I'd also like to know what awful results have occurred from Martha's marketing techniques - unless it's a strained back from "stenciling the driveway"!

I've said it before, I'll say it again. Martha has wildly popularized what used to be called the domestic arts. She shows women how to be creative, artistic and successful without having to leave the kitchen. This is anathema to the politically correct of this country. I know this from personal experience. When I invited Martha Stewart to lecture at an organization I belonged to, I was told in no uncertain terms that she was "bad for women." (By a group of men, naturally.) She was viewed as an illiberal icon. I know she is a Democratic Party contributor but if we've learned nothing else over the last few years, it's that Democrats love to eat their own.

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