Securities Fraud: Martha Stewart

In 2003 a big topic of news was the fact that The Securities and Exchange Commission filed securities fraud charges against Martha Stewart and her stockbroker at the time Peter Bacanovic.

You can read the full article by the SEC here. In an excerpt below from the article the SEC describes exactly what Martha Stewart is being charged with and what her and her former stockbroker did.

"The complaint was filed in federal court in Manhattan, alleged that Stewart committed illegal insider trading when she sold stock in a biopharmaceutical company, ImClone Systems, Inc., on Dec. 27, 2001, after receiving an unlawful tip from Bacanovic, at the time a broker with Merrill Lynch, Pierce, Fenner & Smith Incorporated. The Commission further alleges that Stewart and Bacanovic subsequently created an alibi for Stewart's ImClone sales and concealed important facts during SEC and criminal investigations into her trades. In a separate action, the United States Attorney for the Southern District of New York has obtained an indictment charging Stewart and Bacanovic criminally for their false statements concerning Stewart's ImClone trades.

The Commission seeks, among other relief, an order requiring Stewart and Bacanovic to disgorge the losses Stewart avoided through her unlawful trades, plus civil monetary penalties. The Commission also seeks an order barring Stewart from acting as a director of, and limiting her activities as an officer of, any public company. Stewart has been Chairman and Chief Executive Officer of Martha Stewart Living Omnimedia, Inc.

Stephen M. Cutler, the SEC's Director of Enforcement, said: '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.'"

Martha Stewart, along with her former stockbroker, both demonstrated unethical behavior.  On page 277 in Chapter 11 our textbook talks about questions you could ask yourself in ethical decision making. Questions including, "Is this decision fair?" "Does this decision break any laws?" "Does this decision break any organizational rules?" I don't think that Martha Stewart or Peter Bacanovic thought about any of these questions when doing business. Peter Bacanovic should not have had his assistant make the call to Martha Stewart. Martha Stewart took the information and did what was best for her finances. I am not necessarily sure that I wouldn't have done what she did if I was in her shoes. Would you have done something differently if you were in Martha Stewart's shoes?

Posted By: Amy Beagles