A Crime Called Insider Trading - Martha Stewart - Case Study Example

ASSIGNMENT Martha Stewart, a television personality, is an owner and chief executive of a media company ly Martha Stewart Living Omnimedia, Inc) who has gained excellent reputation and consumer acceptance for its classy homemaking services such as cooking, gardening, handicrafts, decoration, arts, figures, interior designing and other home-related services. Martha Stewart had been running an established and well set business that was worth approximately $750 million before her involvement in what we must call a ‘corporate crime’ in late December 2001 and her company was a public limited company of which shares were heavily traded in stock markets. Martha Stewart was involved in a crime called ‘Insider Trading’ because she sold her nearly 4,000 shares of Imclone Systems Inc. to avoid any losses immediately after she received a secret tip or more specifically a non-public information from her broker employed at Merrill Lynch (MER). Moving towards the motives behind this immediate sale of shares, it must be pinpointed that Martha acquired a small amount of shares in Imclone, a biotech company run by her friend Samuel Waksal, in an anticipation of higher profits. Imclone actually had developed a new vaccine for cancer patients and had expecting that the approval (from FDA) of which would bring a revolution in the pharmaceutical industry that would not only benefit public but also the company in terms of profits. However, when the owner Sam Waksal came to know about ‘an impending US government report denying approval of ImClones most promising product, a cancer therapy drug called Erbitux’, he immediately called his broker Peter Bacanovic and ordered to go liquid by selling all the shares he and his family withheld at that time because they were expected that prices would plummet once people would be informed about the disapproval. The broker obeyed his client but at the same time, forwarded the same news to his client Martha Stewart who also got rid of her shares at a price of 58$ a day before the news of rejection made public. Hence, it is now proved that Martha was involved in the crime of insider trading by using the secret tip given by her broker and then selling her shares at higher prices in the market. Without any doubt, her unethical behavior could not be justified by any court of law because she prioritized her own gains and benefits at the expense of others. This must be condemned and curbed to set an example for others who tend to take unfair advantages. (David Usborne and Andrew Gumbel) Indeed, Martha Stewart’s case shows good signs of judgment by the US authorities and Securities Exchange Commission because they were able to successfully prove their allegations and charges they raised against Martha and her broker. This point can be buttressed by highlighting the fact that US government accused Martha for “Insider Trading”, for conspiracy and for obstructing their movements through their misleading and repeatedly false statements. The case about Insider trading was proved when Peter’s assistant accepted that he was the person who forwarded the secret tip to Martha when he was pressurized by his boss and was offered some material benefits if he would support them in hiding that ploy. So, it could now be concluded that the famous personality’s indictment was based on evidence of a corporate crime when she fearlessly violated the business ethical principles of fair dealing and was therefore, involved in a misconduct by openly denying that she didn’t not commit any crime and was innocent. Besides this case, she tried to justify her decision of selling her shares in ImClone by saying that she already had an agreement with her broker that if her shares would fetch below the threshold of 60$, he had to sell her shares without any delay but her point could be countered by mentioning (the fact) why the transaction took place a day prior to the announcement by government about its rejection of the new drug and why she didn’t offer them in past weeks if she had an agreement with her broker. This would undoubtedly make it difficult for Martha to defend herself from such allegation. I agree with the point that Martha Stewart was guilty beyond a reasonable doubt of a planned conspiracy or a nefarious ploy and obstruction of justice charges. Furthermore, she was also involved in manufacturing fake statements in order to protect herself from accusations, charges or allegations on Insider Trading scandal as well as lied with concerned authorities especially the law agencies. She in cooperation with her broker Peter Bacanovic and the assistant Faneuil, created a story that she ordered her broker to sell her shares if they fell below a threshold of 60$. The broker supported her in that ploy of Insider Trading and influenced his assistant to remain quiet by offering him some luring monetary benefits in reward. However, Martha, fortunately 9or unfortunately) was released from those 60$ threshold agreement between Martha and her broker at Merrill Lynch (MER) because of some obvious weaknesses and lack of evidences since both Martha and her broker did not accept the charges and called themselves innocents. Of course, they did nothing but shedding the crocodile tears to guard their honor and respect and to protect themselves from getting maimed in public. But to Martha and Peter’s surprise, Faneuil one day admitted that he was guilty and divulged the whole scenario that her boss (Peter) was out of station when he was contacted by Waksal and then Bacanovic forced him to tip or update Martha Stewart about the new situation so that she could adjust herself accordingly. Martha Stewart and her broker Peter Bacanovic’s sentences were appropriate in my opinion because they both were guilty and committed a severe crime. Peter was responsible for violating the brokerage’s firm rule of client’s Information Privacy and was therefore expelled from his company along with his assistant in addition to his legal punishment from the court of law. Both Martha and Bacanovic were sentenced for five months in prison, five months of home detention and confinement, two years probation and an imposition of $30,000 fine and 4,000 respectively for getting involved in unethical instances and misconduct. In addition, the assistant Doughlas Faneuil’s sentence was appropriate as well because he was also a direct participant in that conspiracy and remained quiet for a considerable time before he revealed the truth of providing the inside information to Martha and of receiving the worldly incentives. In fact, there was one major aim underlying the investigation and that whole tedious exercise i-e to make people believe that they are not vulnerable to the powerful and they can’t be manipulated by the privileged segments of society. In conclusion, Martha Stewart’s case provides us an insight over the fact that sometimes small blunders bring catastrophic results to an individual and become way difficult to get rectified. Martha owned an established business that was doing quite well in comparison to other businesses (for example there was no liquidity issue, no worries about consumer responses/feedback, demand factors etc) yet her greediness to save a negligible (for her) 30,000-40,000$ amount through a wrong tactic brought her enormous losses when her company’s share price plummeted to just 9.5$ a share from 20$. (David Usborne and Andrew Gumbel) References / Bibliography Westby, Arianne R. and Mary P. Moulton. “Martha Stewart Living Omnimedia, Inc.” Mendoza College of Business-University of Notre Dame. No date. www.awpagesociety.com/images/uploads/Martha_Stewart-Note.pdf Hoffman, Drew. “Martha Stewarts Insider Trading Case: A Practical Application of Rule 2.1”. The Georgetown Journal of Legal Ethics July 1 2007  http://www.allbusiness.com/legal/banking-law-banking-finance-regulation/8908385-1.html Vega, Dr. Bob. “Martha Stewart Case Study: the brand in Crisis”. Scribd.com 2006. http://www.scribd.com/doc/24813534/Martha-Stewart-Case-Study Usborne, David and Andrew Gumbel. “Martha Stewart faces nine counts of insider trading”. Independent.co.uk 5 June 2003. http://www.independent.co.uk/news/world/americas/martha-stewart-faces-nine-counts-of-insider-trading-539793.html Stefano, Theodore F. di. “Martha Stewart and Insider Trading”. Ecommercetimes.com March 18 2005 http://www.ecommercetimes.com/story/40996.html Read More