An Argumentative Essay on The Trial of Martha Stewart

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Fraud, conspiracy, lying, and so on is not terms that anyone would want associated with his or her name. Nonetheless, this happened to Martha Stewart. Martha Stewart is a name that most Americans and the rest of the world will attest. The name has pronounced itself across magazines, cook books, and Style and The Learning Channel show. Yet, the name has pronounced itself again in the history of American major scandals. Regarded as a ‘cultural icon’, Martha made her name fundamentally on home making. After her highly publicized scandal in the early 2000, Martha Stewart still claims widespread popularity as a business maven (citation here). The founder and former CEO of Martha Stewart Living Omimedia Inc became the centre of headlines and the federal investigations regarding her stock trading. This paper seeks to analyze information on the high profile case of Martha Stewart insider trading. The paper will take special concerns on (i) whether Martha Stewart committed the crime of insider when she traded her ImClone shares, (ii) whether U.S Attorneys and Securities and Exchange Commission used good judgment in Martha Stewart indictment, (iii) if the jury was justified to pronounce Martha Stewart guilty without reasonable doubt and, (iv) if the punishment accorded to her and other perpetrators was appropriate.

1. Whether Martha Stewart committed Crime of insider trading

To evaluate the crime of insider trading, it is appropriate to understand what insider trading is. In insider trading, an investor buys or sells securities after obtaining reasonably important non public information. While in procession of this material, he or she then employs to breach confidence or trust obligation. In the legal technicality, Martha Stewart did not breach the fiduciary duty to other investors since she was not an officer or director and had no obligation to inform other investors. From this perspective, if Martha Stewart had initially confessed to her trade she would avoided the indictments for insider trading. But instead, chose to collude with her broker, Bacanovic fabricating a story on how there was a standing order of OmClone shares when the stock price fell below $60 the par (citation here). Up to this level, the case dynamics represents an ethical distinction by Martha Stewart and no crime of insider trading. When she received the information on the potential drop on ImClone’s share price, she ordered her broker to sell her shares, unknowingly engaging in an illegal behavior. Nonetheless, in the insider regulations, the section of tipper/tippee stipulates that an investor is liable for security fraud if the investor processes securities based on the information that originates from an insider. In this case, the tippee is the receiver. In addition, if the tippee decides to share the information with another person, the other person becomes a tippee (citation here). In an extenuated matter, Martha Stewart is foreseen as a tippee and thus an insider, for this reason subjected to security fraud liability. One would argue that the insider trading mostly harmed the inventors who bought the alleged shares. Martha and Sam sold these shares as if other investors sold them.

1. Did U.S Attorneys and Securities and Exchange Commission (SEC) used good judgment in Martha Stewart indictment

By conspiring with her broker Becanovic, she knowingly engaged in a behavior that was unethical. On the onset, Martha and Becanovic conspired to defraud Securities and Exchange Commission (SEC). Defrauding the investigators working on ImClone case brought the case in a new legal level. They fabricated a story that prudently explained the stock coincidental sale. Becanovic told the investigators that Martha had ordered the sale of ImClone shares when the stock fell on $60 mark to offset other tax gains (citation here). Furthermore, Stewart’s assistant, Ann Armstrong confessed witnessing her boss erasing Becanovic message concerning ImClone stock sale. Thereafter, Becanovic presented a worksheet that indicated a ‘@$60’ entry that related to the agreement between Martha and Becanovic. This is worth noting because this was the only entry in the worksheet represented in a different ink.

Attorneys and SEC used good judgment because Martha Stewart was charged with inter alia, perjury, conspiracy to abstract SEC investigations, and making false statements. The charges regarding to conspiracy to abstract SEC investigation led to the criminal trial. The insider trading charges on the actual trade later followed (citation here). The significant jail time that Martha Stewart received came from the cover-up and not from the trade. Had Martha Stewart chosen the course of telling the truth from the beginning, charges brought to her could have recognized with absolute uncertainty.

Of course, prosecutors had additional motive to pursue the case. Martha Stewart is a public figure and the truth is that there were speculations that she was too arrogant to admit to her wrong doing, an interpretation by the lawmakers that she felt too ‘big’ for the law. Additionally, the government was seeking for a high-profile scapegoat following the prevalent corporate scandals at that time such as the downfall of Enron, Tyco, and WorldCom.

If the jury was justified to pronounce Martha Stewart guilty without reasonable doubt

Until this time, what we know that shortly after Sam Wakal daughter dropped her ImClone shares, Bacanovic called Martha Stewart office leaving the message with one of her assistants about the forecasted downward trading of ImClone stock. While refueling in Texas she returned Bacanovic call reaching his assistant, Faneuil who after the phone call immediately instructed Merrill Lynch to execute the sale. Days after the stock was sold, FDA announced their decision to reject Erbitux (citation here). This led to free fall on ImClone share price. There were conflicting accounts on what transpired the sale misleading the investigators. Stewart and Bacanovic explained to the investigators that the stock was sold because of the prearranged order – if the stock fell below the $60 margin. The third party, Douglas Faneuil, Bacanovic assistant denied this saying that he was only pressured by his boss, Bacanovic to lie about the stop-loss order. Initially, he had backed-up prearranged order story. The jury gave much weight Faneuil testimony and confession because he was the government key witness. The jury also considered Ann Armstrong’s testimony crucial; she testified that she saw her boss altering the phone record. In her testimony, she also said that she knew of Bacanovic and Martha Stewart January 16 2002 breakfast meeting. This made the jurors even more suspicious. Perhaps, another testimony that was damaging to Martha Stewart fate was her friend’s Marianna Pasternak testimony. On the witness stand, she said, "Isn’t nice to have brokers who tell you these things". Such testimonies and failure to provide proof to support the existence of the stop-call order made Ms. Martha’s situation bad in front of the jury. The jurors were also cynical about Martha Stewart hiring a criminal lawyer long before the investigators contacted her. With this regard, the development of the scandal and the probe justified the jury to pronounce Martha Stewart guilty without reasonable doubt.

1. Whether the punishment accorded to Martha Stewart and other perpetrators was appropriate.

The jury indicted Martha Steward on four counts of lying to the investigators while lying to obstruct justice. Later on June 17, 2004, Judge Codarbaum sentenced Martha Stewart to 5 months imprisonment and two years of supervised release with $30,000 in fines. To settle a civil case of insider trading, Martha Stewart agreed to pay $195, 081 to cover the financial gains and penalties (citation here). She also received a five-year ban on serving as a director or an officer of any company. Until today, the scandal has yielded mixed opinions. Some say, she was targeted as because of her popularity. Others note that she was favored because many men enlisted in the major American scandals are serving many years in prison time, whereas she received only five months. On my opinion, in the legal arena Martha Stewart scandal compares to the most recent scandal pales such as the Lehman Brothers and individuals such as Bernie Madoff with his billions Ponzi scheme. Clearly, had Martha Stewart received ‘heavy’ conviction, reoccurrence of such misconducts would have condensed. The ‘light’ conviction led to the escalation of recent instances of insider trading such as that of Rajaratnam of Galleon Group insider trading scandal. In addition, on the public arena she suffered immense embarrassment and not forgetting the effect on her brand equity and personal brand which rated much lower than that of Enron.

In a separate hearing on the same day, Peter Bacanovic received similar sentence like that of Martha Stewart – five months imprisonment and two years under supervised release. Bacanovic also agreed to pay a fine of $75, 645. Bacanovic received a fair sentencing since he had conspired with Martha Stewart to obstruct SEC investigations. He had to pay the fine plus the legal fees. He too suffered humiliation and trust from this horrible ordeal. Douglas Faneuil’s sentence was $2,000. His corporation with federal investigators saved him prison time. His punishment was fair. Had he chosen to follow the conspired story he could have earned him prison time.