Saturday, June 07, 2003
Martha Musings-This is an interesting part of the Stewart indictment that Jeffery Collins brings up.
Inserting an unusual twist into their indictment of the domestic diva, prosecutors charge that she committed a crime when she stood up in public last summer and denied engaging in insider trading. "I was a little surprised at that," said Richard A. Serafini, a former economic crimes prosecutor in New York. "There's kind of a natural tendency when you're confronted with something to deny it. Now they're charging it as market manipulation." Legal experts said the charge is a high-risk move designed to convince a jury that Stewart hurt thousands of ordinary stockholders in Martha Stewart Living Omnimedia by trying to cover up her legal problems.Normally, a CEO in legal trouble unrelated to their job wouldn't be in such a bind. For instance, if Bill Gates were trying to cover up a DUI charge, Microsoft would go on nicely without him if he were to spend time in the pokey. However, in the case of Martha Stewart Living Omnimedia, " La société est moi." She is the primary asset of the corporation and a significant diminishment of the value of that asset should be made known. For instance, if she were to have come down with a terminal cancer, stockholders would need to be made aware of that in order to make a fair assessment of the value of MSLO. The difference here is that she wouldn't have put herself at risk of jail time by reporting on her health. If I were her lawyer, I'd try pointing out the Fifth Amendment’s rules against self-incrimination. However, the Fifth Amendment doesn't apply in civil cases; since fines and not jail time are involved, there is no incrimination to be protected against. She has a fiduciary duty to her stockholders to be honest about the financial standing of MSLO. Assuming for the moment that she did do the insider trading she's alleged to have done, she failed in that task and is liable for that. She's in an awkward case where being honest would land her in jail and giving a pro-forma denial of the charges would, too. However, she could have saved herself the trouble by leaving the $40,000 (IIRC) of Imclone profits on the table and not acting on the inside information.
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