RantsCounterRants: Martha Stewart’s Living, thank you…

Finally, a more even-handed article in Fortune magazine about Martha Stewart.  The key problem with the case against her is lucidly stated, for once:

…”Typically, insider-trading cases involve a high-ranking person inside a firm who uses nonpublic information, such as knowledge of an upcoming merger or product development, to buy or sell stock. For instance, ImClone CEO Samuel Waksal pleaded guilty in October to charges of trying to dump his shares--and getting his father and daughter to do the same--after he became aware that regulators were going to turn down his firm's application for its cancer-fighting drug.

That is a classic insider-trading case. Stewart's is different. Regulators are arguing that Stewart knew that company insiders--Waksal and members of his family--were selling and that this constitutes insider trading. "Knowledge that another insider was selling has never been the basis for an insider-trading case," notes Seth Taube, chair of securities litigation at McCarter & English and a former branch chief of enforcement at the New York regional office of the SEC. Prosecutors need to prove not only that Martha knew insiders were selling but also that she was aware that the information wasn't public. They also have to prove that she knew her Merrill Lynch broker, Peter Bacanovic, or his assistant, Douglas Faneuil, were breaching their duty to their clients and their employer by giving her the information. (Prosecutors will argue that Martha knew the latter because she used to be a stockbroker herself.) “

It’s a pretty weak case; it really wouldn’t have taken that much for a determined investor with moxie to find out what was going on with Waksal about the same time that Martha found out.  How public was the Waksal situation?  That's fairly subjective.

In comparison to the Martha Stewart hub bub, Kenneth Lay (Enron), Dennis Koszlowski (Tyco), Bernie Ebbers (WorldCom), Jack Welch (GE), their cronies and a host of others have done extensive damage to our markets, causing huge losses to investors and employees alike.  No market sector was left untouched by the BILLIONS of damage these characters left in their wakes.  Don't kid yourselves, each of these CEO's signed corporate meeting minutes and articles of incorporation, purchase and sales agreements, corporate board authorizations, many other legal documents, which clearly indict them of unethical practices.

While insider trading on several thousand shares of stock isn't ethical (when proven), it's a far cry from whoops! *misstating* about SEVEN BILLION DOLLARS (in the case of WorldCom), or fraudulently insisting your company buys you a SIX THOUSAND DOLLAR SHOWER CURTAIN (in the case of Tyco) for your company-paid apartment.

It’s the inappropriateness of the level of attention – the amount of time on this subject has been totally disproportionate to the size of the problem.  The expenditure of tax dollars for the irrational amount of time spent by Congress on this matter to date also chaps my chops.

I seriously doubt that retirees have lost their lifetime savings because of anything that Martha did, legally or otherwise.  MSO is only 10 years old or so; it’s a media/entertainment company, typically not the kind of stock that investors would overweight.  Enron employees and retirees are all paying enormous prices for the lack of ethics demonstrated by their leadership.  WorldCom employees and now laid-off staff are also suffering for lack of resources squandered through poor management and questionable ethics.  The entire world market was impacted substantially by these two companies alone.  (We won't even get into GE's manipulative practice under Jack Welch of borrowing long-term debt to pay off short-term debt, just to twink the numbers for the analysts -- or his affair...naturally, NBC as a subsidiary of GE won't want to air this dirty laundry, they'll go after Martha instead, especially since she ditched NBC in the morning for CBS for her show.)

Let me add that I'm extremely annoyed at GE/NBC; they’ve been working on a tabloid-type-made-for-prime-time-TV movie about Martha – even though it's not yet been proven beyond a reasonable doubt that a crime was committed.  Borders on libel…

So why Martha?  For the simple fact she's a woman.  No woman can make it to the top without being crucified in the press for anything she does, right or wrong.  Look at Carly Fiorina at HP, or Jill Barad at Mattel -- had they been men, no one would ever have made a comment about their gender, only about their poort management skills or questionable choices.  Even their actions as managers PALE in comparison to the dealings of the shysters in management at Enron/WorldCom/Tyco etc.

No wonder there are few women in executive roles.  They're either eaten alive before they make it to the top, or they're too smart to want to trade in their lives for the intense scrutiny and harassment they'll have to put up with to be successful.

Whenever I hear people ranting their opinions about Martha’s wickedness and her evil insider trading, I wonder if it ever occurs to them situations like this happen all the time.  Let’s say you’ve got some money, you move in certain circles where your closest friends own high-profile corporations; your broker's a friend, too, and you have a casual chat about another friend and his company.  You might say at a party over cocktails, "Yeah, I should buy some, but I'd probably only hold it until $XX price per share", constituting a verbal order.  Have another cocktail, move on to the next dishy topic…

I wonder if it ever occurs to the rantors that junior assistants like Faneuil might not want to "pants" themselves and reveal their own screw ups (like calling clients with inside info on their own initiative) but would rather let a broker fry for it?  It’s small potatoes in the scheme of spectacularly lousy business ethics, portrayed by an equally shady press.

[DISCLOSURE: I own MSO stock.  I’ve owned it since shortly after the stock’s IPO.  I’m going to continue to own it.  I have a subscription to Living magazine, have had one for longer than I’ve owned the stock.  And I regularly buy MSL products either from Kmart or from the catalog at http://www.marthastewart.com site.  And I particularly like the Thanksgiving planning schedule she’s published there.  Roasted garlic mashed potatoes, anyone?]

5:01:29 PM    comment []