Martha Stewart Criminal Traits
MARTHA STEWART – CRIMINAL LIABILITY
Martha Stewart – Criminal Liability
Carnell C. Holmes
Austin Peay State University
Business Law
Professor Elizabeth Rankin
December 7, 2012
1
MARTHA STEWART – CRIMINAL LIABILITY
2
Abstract
Most people that are in high profile positions would rather receive positive accolades for their great accomplishments. Committing fraudulent acts or being unethical is not what a person with a thriving business would want to connected with. A name that most households have grown familiar with was, Martha Stewart. Martha Stewart was associated with an array of cookbooks, and she was also able to influence her designing style throughout many homes. Aside from being a phenomenal trendsetter, Martha …show more content…
Stewart was convicted of obstruction of justice and was investigated for insider trading. Both offenses in a business setting have been considered to be a white collar crime. Unethical decisions can be detrimental to the company and the person committing the crime.
Background
Martha Stewart, CEO and chairman of Martha Stewart Living owned a large amount of shares of ImClone Systems Incorporated stock.
ImClone is an oncology company that is
committed to the treatment and research of patients that have various forms of cancer. Martha
Stewart was informed in 2001 by the stockbroker that she and the CEO of ImClone that she should sell her shares of stock. The CEO of ImClone had done the exact same because a new prescription drug that the company had invested a great deal of money was not being approved by the Food and Drug Administration. Martha Stewart sold her 4,000 shares of stock.
Money.CNN.com found the following:
MARTHA STEWART – CRIMINAL LIABILITY
3
Stewart avoided a loss of about $51,000 by selling nearly 4,000 shares of
ImClone stock on Dec. 27, 2001, rather than the next trading day, when the stock tumbled after regulators rejected the company’s application for a key center drug.
The amount of $51,000 was not a substantial amount, however, the Securities and
Exchange Commission determined that both Martha Stewart and CEO of ImClone to sell their shares of stock on the same day. The SEC had noticed the fortuity and wanted to know the connection between the two. When asked by the government why she sold the stock before it crashed and had not gone public; Ms. Stewart lied and informed that anytime the stock fell below
$60.00, she agreed with her stock broker she would sell. “Once a company makes poor ethical choices it carries the baggage of those choices despite successful and sincere efforts to reform
(Hennings, 2009). This type of trading is called insider trading. According to Investopedia,
Insider trading can be either legal or illegal it is established being illegal when the pertinent information is not presented to the public.
Illegal insider trading is when the non-public
information is tipped and given to others to avoid financial burdens and or gains. Directors are not the only individuals that can be penalized or convicted of insider trading. “Brokers and even family members can be guilty” (Investopedia, 2012). The explanation was not believed because she knew the CEO of the company and he could have informed her to sell her stock. It was later determined that is very unethical and not tolerated to lie to federal officials regarding the investigation of possible insider trading.
According to Newsmax.com (2004), the former
assistant of Merrill was going to testify that the government account of fraud was correct and that he was given gifts to lie on behalf of Martha Stewart. Before the government was able to announce publicly what she was charged with, Stewart sold a substantial amount of her
MARTHA STEWART – CRIMINAL LIABILITY
4
company, Martha Stewart Living Omnimedia Inc. stock to protect her financially; and did not inform her company’s shareholders of it. Ms. Stewart also altered the phone messages and telephone logs to appear that she was being honest about selling the stock anytime it fell below
$60.00. Ms. Stewart tried all she could not to reveal the truth of her unethical efforts. The following actions would be considered a white-collar crime.
Jennings (2009) found the following:
After the 1929 stock market crash, Congress perceived problems with the way securities were being sold and traded in the national exchanges. To correct some of the problems and abuses in the trading of securities, Congress passed the 1933 and 1934 Securities Act, the first of which created the SEC as the administrative agency responsible for the enforcement of the two acts. (p. 188)
Martha Stewart being a prestigious, successful woman was able to hire the best attorneys that money could purchase. Stewart`s attorney`s argument was "Why would Stewart, herself a former stockbroker, deliberately break the law and risk a fortune to save what was a small amount of money" (Newsmax.com, 2004)?
According to the U.S Department of Justice, Federal Bureau of Investigations:
White-collar crime would be considered non-violent crimes that are mainly committed by individuals that have high profile statuses or an occupation of trust.
Most of the crimes are economic crimes, corporate crimes that include environmental law violations and health and safety law violations. Martha
MARTHA STEWART – CRIMINAL …show more content…
LIABILITY
5
Stewart committed an economic crime because she sold her stock before the news went public the next day and avoided the 60% downward fall of the stock.
Consequently, it made her guilty of insider trading and obstruction of justice.
Impact of the Crime
Once Martha was charged with the insider trading and obstruction of justice, she was forced to step down as the CEO of her company. She was ridiculed and shamed because of her unethical behavior. The media was able to portray her in an entirely different matter and it was nothing glamorous about that. The exposure caused more people to want to get to know who she was and she became even more popular because of the case and charges she was faced with.
Martha Stewart lost the support and trust of her stakeholders; it was obvious that she was not concerned about their interest in her company. The stock of Martha Stewart Living Omnimedia
Inc, plummeted by 60% causing her to lose over $300 million.
Punishment
In 2004, Stewart was found guilty of conspiracy and obstruction of justice for a case of insider stock trading. Martha Stewart was sentenced to five months in a minimum federal woman’s prison in West Virginia. Also, she was on house arrest for five months and received two years probation and a fine of $30,000.
MARTHA STEWART – CRIMINAL LIABILITY
6
Jennings (2009) found the
following:
Obstruction can be committed by destroying or altering documents that are subject to subpoena, or to alter or destroy those types of documents. Encouraging or giving false testimony is an also a form of obstruction of Justice…The
Sarbanes Oxley Act provisions on obstructions also cover audit records and require auditors to retain their work papers related to a client’s audit for at least five years. Any destruction of these documents prior to the expiration of that period would constitute a felony and carries a penalty of up to 10 years. (p. 263)
.
It is clear that Stewart`s punishment was not as harsh as it could have been. According to
SOX provisions, a person could be sentenced way up to 10 years and she was slapped with a lenient punishment. Her status and popularity could have possibly helped her with such a lenient sentence. However, her stock assessment and the followers she once had for her company suffered the worst, being the most reprimand of all.
Martha Stewart`s Present Life
Presently, Martha Stewart has once again begun to make a name for her as she has known it before her legal issues. She has written a book about how to manage and start a business of your own. Stewart has collaborated with Kmart in selling her company`s line, Martha Stewart
Everyday Line. Stewart has also made numerous television appearances since her release in
2005. There are numerous retail stores that carry her product and she is producing quite well ac
MARTHA STEWART – CRIMINAL LIABILITY
7
It may not have been determined if Martha Stewart knowingly understood that she was committing a crime or not. However, to be investigated and questioned by the SEC and hide evidence is unethical and is without a doubt illegal. Although, Martha Stewart did not spend an extensive amount of time being incarcerated, it was necessary for her to spend time there. No matter how a person portrays themselves on the outside, when they are faced with adversity that is when their true characteristics are brought forth. However, being able to make decisions with integrity, not wavering or compromising ones ethical values is most important. One negative incident can tarnish a reputation of a person and or corporation. As a leader and a public figure, there should be an accountability; to want to do the right thing even when no one is looking.
How people are viewed is the perception and it may be more powerful than reality.
MARTHA STEWART – CRIMINAL LIABILITY
8
References
Jennings, M. (2012). Business: Its legal, ethical, and global environment (9 th ed.). Mason, OH:
South-Western Cengage Learning.
NewsMax.com Wires. (2004). NewsMax.com. Retrieved December 5, 2012, from http://archive.newsmax.com/archives/articles/2004/1/20/142809.shtml. Barnett, C. (). U.S Department of Justice Federal Bureau of Investigations Criminal Justice
Information Services (CJIS) Division. In The Measurement ofWhite-Collar Crime Using
Uniform Crime Reporting (UCR) Data. Retrieved December 5, 2012, from http://www.fbi.gov/about-us/cjis/ucr/nibrs/nibrs_wcc.pdf. (2012). Investopedia. In Insider Trading . Retrieved December 5, 2012, from http://www.investopedia.com/terms/i/insidertrading.asp#axzz2EOJrxN8m. (2004). Stewart Convicted on All Charges . In CNNMONEY. Retrieved December 7, 2012, from http://money.cnn.com/2004/03/05/news/companies/martha_verdict/.
Martha Stewart – Criminal Liability
Carnell C. Holmes
Austin Peay State University
Business Law
Professor Elizabeth Rankin
December 7, 2012
1
MARTHA STEWART – CRIMINAL LIABILITY
2
Abstract
Most people that are in high profile positions would rather receive positive accolades for their great accomplishments. Committing fraudulent acts or being unethical is not what a person with a thriving business would want to connected with. A name that most households have grown familiar with was, Martha Stewart. Martha Stewart was associated with an array of cookbooks, and she was also able to influence her designing style throughout many homes. Aside from being a phenomenal trendsetter, Martha …show more content…
Stewart was convicted of obstruction of justice and was investigated for insider trading. Both offenses in a business setting have been considered to be a white collar crime. Unethical decisions can be detrimental to the company and the person committing the crime.
Background
Martha Stewart, CEO and chairman of Martha Stewart Living owned a large amount of shares of ImClone Systems Incorporated stock.
ImClone is an oncology company that is
committed to the treatment and research of patients that have various forms of cancer. Martha
Stewart was informed in 2001 by the stockbroker that she and the CEO of ImClone that she should sell her shares of stock. The CEO of ImClone had done the exact same because a new prescription drug that the company had invested a great deal of money was not being approved by the Food and Drug Administration. Martha Stewart sold her 4,000 shares of stock.
Money.CNN.com found the following:
MARTHA STEWART – CRIMINAL LIABILITY
3
Stewart avoided a loss of about $51,000 by selling nearly 4,000 shares of
ImClone stock on Dec. 27, 2001, rather than the next trading day, when the stock tumbled after regulators rejected the company’s application for a key center drug.
The amount of $51,000 was not a substantial amount, however, the Securities and
Exchange Commission determined that both Martha Stewart and CEO of ImClone to sell their shares of stock on the same day. The SEC had noticed the fortuity and wanted to know the connection between the two. When asked by the government why she sold the stock before it crashed and had not gone public; Ms. Stewart lied and informed that anytime the stock fell below
$60.00, she agreed with her stock broker she would sell. “Once a company makes poor ethical choices it carries the baggage of those choices despite successful and sincere efforts to reform
(Hennings, 2009). This type of trading is called insider trading. According to Investopedia,
Insider trading can be either legal or illegal it is established being illegal when the pertinent information is not presented to the public.
Illegal insider trading is when the non-public
information is tipped and given to others to avoid financial burdens and or gains. Directors are not the only individuals that can be penalized or convicted of insider trading. “Brokers and even family members can be guilty” (Investopedia, 2012). The explanation was not believed because she knew the CEO of the company and he could have informed her to sell her stock. It was later determined that is very unethical and not tolerated to lie to federal officials regarding the investigation of possible insider trading.
According to Newsmax.com (2004), the former
assistant of Merrill was going to testify that the government account of fraud was correct and that he was given gifts to lie on behalf of Martha Stewart. Before the government was able to announce publicly what she was charged with, Stewart sold a substantial amount of her
MARTHA STEWART – CRIMINAL LIABILITY
4
company, Martha Stewart Living Omnimedia Inc. stock to protect her financially; and did not inform her company’s shareholders of it. Ms. Stewart also altered the phone messages and telephone logs to appear that she was being honest about selling the stock anytime it fell below
$60.00. Ms. Stewart tried all she could not to reveal the truth of her unethical efforts. The following actions would be considered a white-collar crime.
Jennings (2009) found the following:
After the 1929 stock market crash, Congress perceived problems with the way securities were being sold and traded in the national exchanges. To correct some of the problems and abuses in the trading of securities, Congress passed the 1933 and 1934 Securities Act, the first of which created the SEC as the administrative agency responsible for the enforcement of the two acts. (p. 188)
Martha Stewart being a prestigious, successful woman was able to hire the best attorneys that money could purchase. Stewart`s attorney`s argument was "Why would Stewart, herself a former stockbroker, deliberately break the law and risk a fortune to save what was a small amount of money" (Newsmax.com, 2004)?
According to the U.S Department of Justice, Federal Bureau of Investigations:
White-collar crime would be considered non-violent crimes that are mainly committed by individuals that have high profile statuses or an occupation of trust.
Most of the crimes are economic crimes, corporate crimes that include environmental law violations and health and safety law violations. Martha
MARTHA STEWART – CRIMINAL …show more content…
LIABILITY
5
Stewart committed an economic crime because she sold her stock before the news went public the next day and avoided the 60% downward fall of the stock.
Consequently, it made her guilty of insider trading and obstruction of justice.
Impact of the Crime
Once Martha was charged with the insider trading and obstruction of justice, she was forced to step down as the CEO of her company. She was ridiculed and shamed because of her unethical behavior. The media was able to portray her in an entirely different matter and it was nothing glamorous about that. The exposure caused more people to want to get to know who she was and she became even more popular because of the case and charges she was faced with.
Martha Stewart lost the support and trust of her stakeholders; it was obvious that she was not concerned about their interest in her company. The stock of Martha Stewart Living Omnimedia
Inc, plummeted by 60% causing her to lose over $300 million.
Punishment
In 2004, Stewart was found guilty of conspiracy and obstruction of justice for a case of insider stock trading. Martha Stewart was sentenced to five months in a minimum federal woman’s prison in West Virginia. Also, she was on house arrest for five months and received two years probation and a fine of $30,000.
MARTHA STEWART – CRIMINAL LIABILITY
6
Jennings (2009) found the
following:
Obstruction can be committed by destroying or altering documents that are subject to subpoena, or to alter or destroy those types of documents. Encouraging or giving false testimony is an also a form of obstruction of Justice…The
Sarbanes Oxley Act provisions on obstructions also cover audit records and require auditors to retain their work papers related to a client’s audit for at least five years. Any destruction of these documents prior to the expiration of that period would constitute a felony and carries a penalty of up to 10 years. (p. 263)
.
It is clear that Stewart`s punishment was not as harsh as it could have been. According to
SOX provisions, a person could be sentenced way up to 10 years and she was slapped with a lenient punishment. Her status and popularity could have possibly helped her with such a lenient sentence. However, her stock assessment and the followers she once had for her company suffered the worst, being the most reprimand of all.
Martha Stewart`s Present Life
Presently, Martha Stewart has once again begun to make a name for her as she has known it before her legal issues. She has written a book about how to manage and start a business of your own. Stewart has collaborated with Kmart in selling her company`s line, Martha Stewart
Everyday Line. Stewart has also made numerous television appearances since her release in
2005. There are numerous retail stores that carry her product and she is producing quite well ac
MARTHA STEWART – CRIMINAL LIABILITY
7
It may not have been determined if Martha Stewart knowingly understood that she was committing a crime or not. However, to be investigated and questioned by the SEC and hide evidence is unethical and is without a doubt illegal. Although, Martha Stewart did not spend an extensive amount of time being incarcerated, it was necessary for her to spend time there. No matter how a person portrays themselves on the outside, when they are faced with adversity that is when their true characteristics are brought forth. However, being able to make decisions with integrity, not wavering or compromising ones ethical values is most important. One negative incident can tarnish a reputation of a person and or corporation. As a leader and a public figure, there should be an accountability; to want to do the right thing even when no one is looking.
How people are viewed is the perception and it may be more powerful than reality.
MARTHA STEWART – CRIMINAL LIABILITY
8
References
Jennings, M. (2012). Business: Its legal, ethical, and global environment (9 th ed.). Mason, OH:
South-Western Cengage Learning.
NewsMax.com Wires. (2004). NewsMax.com. Retrieved December 5, 2012, from http://archive.newsmax.com/archives/articles/2004/1/20/142809.shtml. Barnett, C. (). U.S Department of Justice Federal Bureau of Investigations Criminal Justice
Information Services (CJIS) Division. In The Measurement ofWhite-Collar Crime Using
Uniform Crime Reporting (UCR) Data. Retrieved December 5, 2012, from http://www.fbi.gov/about-us/cjis/ucr/nibrs/nibrs_wcc.pdf. (2012). Investopedia. In Insider Trading . Retrieved December 5, 2012, from http://www.investopedia.com/terms/i/insidertrading.asp#axzz2EOJrxN8m. (2004). Stewart Convicted on All Charges . In CNNMONEY. Retrieved December 7, 2012, from http://money.cnn.com/2004/03/05/news/companies/martha_verdict/.