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Martha Stewart Case - Indictment Responsibly

I need assistance with answering the following Ethics questions regarding Martha Stewart. As a CEO, did Martha Stewart handle the indictment responsibly? Specifically looking as what she said and did.

References:

http://www.cheatingculture.com/marthacharges.htm

http://www.chicagotribune.com/business/sns-ap-martha-stewart-case,1,915599.story?coll=chi-business-utl&ctrack=1&cset=true

http://www.marthastewart.com/portal/site/mslo/menuitem.76d5d3769e1fc1611e3bf410b5900aa0/?vgnextoid=c479cf380e1dd010VgnVCM1000005b09a00aRCRD.

Solution Preview

Please see response attached (for best formatting and highlighted information), which is also presented below. I also provided the link to the court indictment to read, which I make reference to by page number.

RESPONSE:

MARTHA STEWART CASE

1. I need assistance with answering the following Ethics questions regarding Martha Stewart. As a CEO, did Martha Stewart
handle the indictment responsibly? Specifically looking as what she said and did.

Martha Stewart, 61, is a media personality and authority on homemaking, cooking, decor, and other activities related to the home. Earlier in Stewart's career, in the late 1960's and early 1970's, Stewart was a registered representative for the broker-dealer, Pearlberg, Monness, Williams & Day. She is now the CEO and Chairman of Martha Stewart Living Omnimedia, Inc. ("MSO"), which, according to its most recent 10-K filed on March 31, 2003, is a media and retail company that focuses on "the domestic arts, providing consumers with the how-to ideas, information, merchandise and other resources they need to raise the quality of living in and around their homes." From June 2002 to October 2002, Stewart was a member of the Board of Directors of the New York Stock Exchange, Inc., and she is currently a member of the Board of Directors of Revlon, Inc. Stewart owns approximately 61% of the equity and 94% of the voting power of MSO, through her ownership of Class A and Class B shares of MSO. In an affidavit dated August 23, 2002, Stewart invoked her Fifth Amendment privilege against self-incrimination in response to a Commission investigative subpoena to testify about the events alleged in this Complaint. http://www.sec.gov/litigation/complaints/comp18169.htm

Martha Stewart was charged with four offenses that she allegedly did, including some things she said (e.g., false information) as well:

· Obstruction of Justice: Alleges that Stewart tried to hamper the SEC investigation into her stock sale by providing misleading information
· Securities Fraud: Alleges that Stewart made false statements about her stock sale to deceive the investors in her company, Martha Stewart OmniMedia
· Conspiracy: Alleges that Stewart and her broker Peter Bacanovic willingly worked together to obstruct justice and issue false statements
· False Statement: Alleges that Stewart lied when she said that she had an arrangement to sell her stock when it dipped below $60, and when she stated she did not know the Waksal family was selling their stock URL: http://www.cheatingculture.com/marthacharges.htm

The legal Documents on the above website (http://www.cheatingculture.com/marthacharges.htm) suggest that Martha did some things right, like stepping down as CEO to save the reputation of her company. However, she also said and did some ethically questionable things. For example, she should not have withheld information, nor should she have given false information (see p. list of false or misleading statements made by Martha on p. 39-40 of the 6/4/03: Criminal Indictment United States v. Martha Stewart and Peter Bacanovic) or used inside information to further her gains.

Perhaps many people would have sold the stocks, in similar cases if they were going to loose thousands of dollars. What do you think? Should Martha Stewart ignore the information that the founder's were selling their stock and the chance to avoid loosing close to $50.000.00? (see last paragraph of this response).

Indeed, Martha Stewart has a responsibility as CEO and should have ignored the information (assumingly) given to her by her broker, instead of acting on the information. She was not only risking her personal reputations, but the reputation of the company as well. Stephen M. Cutler, the SEC's Director of Enforcement, said this in reference to Martha Stewart:

"It is fundamentally unfair for someone to have an edge on the market just because she has a stockbroker who is willing to break the rules and give her an illegal tip. It's worse still when the individual engaging in the insider trading is the Chairman and CEO of a public company." http://www.sec.gov/news/press/2003-69.htm

Along a similar vein, the website states that when Stewart sold ImClone securities on December 27, 2001, Stewart knew or acted in reckless disregard as CEO and of the fact that:

(1) She possessed confidential information that the Waskals were selling or attempting to sell their ImClone stock; and
(2) Bacanovic's conveyance of this material and confidential information to her constituted a breach of fiduciary duty, or other duty arising out of a relationship of trust and confidence, that Bacanovic owed to Merrill Lynch. http://www.sec.gov/litigation/complaints/comp18169.htm

From another source, Martha's behavior and words were challenged at a number of points during the indictment process (e.g., received an illegal tip from Bacanovic and acted on it by selling her stock; she also created an alibi, instead of telling the truth, Stewart and Bacanovic went on to lie when the Commission staff and criminal authorities questioned them about the facts surrounding Stewart's sale of ImClone stock, etc.), which were questionable in terms of ethics as seen and highlighted in the following excerpt:

Washington, D.C., June 4, 2003 - The Securities and Exchange Commission today filed securities fraud charges against Martha Stewart and her former stockbroker, Peter Bacanovic. The complaint, filed in federal court in Manhattan, alleges ...

Solution Summary

Regarding ethics and the Martha Stewart case this solution looks at how, as CEO, Martha Stewart handles the indictment responsibly, specifically looking as what she said and did. References provided.

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