The Case Martha Stewart of Living Omnimedia
Background
Martha Stewart was at the top of her game in early 2001. Her business was thriving and she labeled a success in more ways than one. She contracted the brokerage firm known as Merrill Lynch to help by handling her stock and investment portfolio. She was represented by Peter Bacanovic (Hays, 2003). Bacanovic had received news through a mutual friend and owner of ImClone Systems, Waksal, indicating that he and his daughter were going to sell out their own stocks. Bacanovic attempted to reach Stewart by telephone, but he had to leave a message after realizing that she was not available to take the call. Later that afternoon, Stewart attempted to return the call to Bacanovic, but reached his co-worker, Faneuil, instead. Faneuil relayed a message to Stewart, at the direction of Bacanovic, concerning the potential selling of the stocks. Faneuil also reported to Stewart that the Food and Drug Administration (FDA) was about to deny the marketing and distribution of a new medication formulated to treat cancer (Hays, 2003). The FDA denial was a vital aspect for Waksal and his daughter selling out their own stocks as it set the downfall of ImClone Systems into motion. Upon actually speaking with Barcanovic, Stewart agreed that it would be in her best interest to sell her almost 4000 shares that she held with ImClone Systems.
The selling of the stocks took place only once. Stewarts acting on information received in an unethical manner is what set the criminal investigation into motion, however she was charged with other criminal offenses in relation to possible insider trading. She was charged with one count of obstructing justice, two counts for making false statements, one count of conspiracy, and one count of securities fraud (Smilon, Hadad, Kulstad, 2003). She allegedly made false statements to investigators twelve times. Until that moment, Stewart did not have a criminal record, nor had she ever had any run-ins with law enforcement.
Martha Stewart was not the only person who knew, approved, and acted in the same manner as she. Peter Bacanovic, the Merrill Lynch broker, is the one who brought the information to Stewarts attention and urged her to sell out. Ultimately, Bacanovic was also charged with crimes in conjunction with Stewart in relation to the incident in question. Ann Armstrong, Stewarts assistant, had firsthand knowledge of Stewart altering a phone log message received from Bacanovic (The Associated Press, 2004). Although Stewart had not asked her to cover for her or to lie, she was still aware of what had happened. Faneuil, who worked with Bacanovic, had spoken with Stewart on the phone concerning the stock selling information. He also had relayed a message to Stewart from Bacanovic urging her to sell out. Incidentally, Faneuil was charged with crimes concerning this matter as well, but Armstrong was only asked to testify. Armstrong was never charged with any crimes relating to the matter. Mariana Pasternak, a friend of Stewarts, testified during the trial as to Stewart telling her of the reasoning behind the selling of the ImClone System stocks (The Associated Press, 2004). She was not charged with any crimes either, but instead used as a witness for the prosecution.
The news of this scandalous even was officially brought to the attention of the public by James Comey. Comey is a member of the Presidents Corporate Fraud Task Force (Smilon, Hadad, Kulstad, 2003). The United States Attorneys Office released news of the official indictment on June 4, 2003. The media quickly enveloped the story. Media groups like CNN quickly attempted to reach Stewart for comment. The only comment offered by Stewart was to simply state that she had done nothing wrong and expected to be completely exonerated of all charges.
The original indictment charged Martha Stewart on with five charges. Count one charged her with Conspiracy under U.S.C. 371. Count two and three charged her with Making False Statements both under U.S.C. 1001. Count four charged Stewart with Obstruction of Justice under U.S.C. 1505. The final charge against Stewart, Count five alleged Securities Fraud under U.S.C. 78j (b). Martha Stewart was represented by a private attorney in these legal matters (Smilon, Hadad, Kulstad, 2003).
The only victim in the criminal matters concerning Stewart is Martha Stewart herself. No one was hurt by her selling her stocks, although it was an unethical decision. Stewart did not intentionally or premeditatedly set out to commit any kind of fraud. She simply followed the advice of her broker. She believed that this information was given to her in order to look out for her best interest as a client. Clearly, if Stewart had the knowledge of how to handle a stock and investment portfolio, then she would not have had to hire a brokerage firm to begin with. As a result of her own decision, she made a victim of herself. Her business suffered immensely, she was forced to step-down from her CEO position, incur an astronomical financial mountain of legal fees, and have her name permanently tarnished by the entire scandal. She even lost time out of her own life when she went to prison. Essentially, Stewart lost her freedom before and after serving time in federal prison.
Stewarts Trial
The trail against Martha Stewart took place in the United States District Court Southern District of New York. This is a federal court jurisdiction. The courts physical location is in Manhattan. The trial and investigation lasted from 2001 through March 2004. The presiding judge in the matter was the Honorable United States District Judge Miriam Goldman Cedarbaum. The prosecution was represented by Karen Patton Seymour, Richard D. Owens, and Michael S. Schachter. Stewart was represented by Robert Morvillo.
During Stewarts trial, there were some incidents that stood out to onlookers. Stewart was never formally charged with insider trading, yet the prosecution made the implication during opening argument (Mahoney, 2004). Defense counsel objected to this allegation, but the presiding judge quickly determined that the prosecution was allowed to do so. Once the implication of insider trading had been made in the presence of the jury, it would most definitely have an effect on the outcome of the trial. Stewart entered a plea of innocent on all counts, but she never took the witness stand. It is too much of a risk to put a defense witness on the stand once they have been charged with making false statements or perjury. Anything they say will immediately be analyzed and broken down for consistency. The jury consisted of eight women and four men. (The Associated Press, 2004)). Ann Armstrong testified against Stewart at trial in reference to Stewart altering a phone log. It was argued by defense counsel that Stewart had instructed her broker to sell her ImClone Systems stocks if their value fell below sixty dollars. A forensics ink expert was brought in by the prosecution to determine that a scribble in Stewarts stock portfolio possessed by Bacanovic had been altered after the sale of the stocks. The ink expert determined that the ink noting the sixty dollar scribble mark was written in a different ink that other writing on the document.
Stewart was never offered nor did she ever enter into any form of plea agreement. Judge Cedarbaum ordered the securities fraud to be thrown out, leaving Stewart with only four charges to answer to. Stewart still faced two counts of making false statements, one count of obstructing justice, and one count of conspiracy (Mahoney, 2004). After a lengthy trial, Martha Stewart was found guilty on all four counts on March 5, 2004. She was sentenced to five months in federal prison and five months of home confinement (CNN, 2005). While some may argue that this was an unfair sentence for Stewart, it is quite the contrary.
Stewart could have easily received five years in prison on each count she was charged with. Ultimately, she could have been sentenced to twenty years in prison. The sentence might be an inconvenience, but it was more than fair. Stewart appealed her conviction to the Federal Court of Appeals. She was attempting to have her conviction reversed as it formed an obstacle for her to legally run her business as CEO due to the felony convictions (CNN, 2006). The Federal Court of Appeals upheld the Stewarts conviction from the lower court, meaning that Stewart lost her appeal.
The following is a timeline of the key trial events surrounding Stewarts trail (The Associated Press, 2004 Mahoney, 2004)
November 18, 2003- Judge Cedarbaum denies motion to dismiss charges against Stewart.
January 26, 2004- Jury selected eight women and four men.
January 27, 2004- Opening statements
Defense compares case to Orwell book, 1984.
February 3-4, 2004- Faneuil testifies that Bacanovic instructed him to tell Stewart about stock
sale and urge her to sell out.
February 10, 2004- Ann Armstrong testifies about altered phone log concerning call from Bacanovic.
February 19, 2004- Forensic ink expert testifies about scribbles in Stewarts portfolio.
February 19, 2004- Mariana Pasternak testifies to Stewart having told her about sale of ImClone
System stocks after learning of Waksal and his daughter selling their own.
February 20, 2004- Under cross examination, Pasternak restates that Stewart could have meant
something else.
Prosecution rests.
February 23, 2004- Gutman backs up Faneuil testimony against Stewart.
February 25, 2004- Defense only inquires about notes about Stewarts investigatory interview
questions.
February 27, 2004- Securities Fraud charge dismissed against Stewart.
March 3, 2004- Jury in deliberation
March 5, 2004- Stewart convicted on all four counts.
October 2004- Stewart begins serving five month prison sentence.
Stewarts trial was uneventful for the most part, but it seems to be full of technicalities on the part of the prosecution. Some attorneys have argued that Stewart was merely used as a judicial tool to send the message that no one is above the law, even celebrities.
Evaluation
Martha Stewart was a very successful woman before succumbing to the legal aspects of the trial. Stewart built the corporation from simple creative solutions for homemakers. Her business was started in the late 1980s and grew immensely until her conviction (Byron, 2002). Stewart named the business after her calling it Martha Stewart Living Omnimedia. Over the course of time, Martha Stewart became a familiar name in many American homes as she was associated with home decorating, cooking, and gardening.
Stewart first achieved success through the publication of her magazine called Martha Stewart Living (Byron, 2002). This monthly publication offered new recipes, gardening tips for the novice, home decorating ideas that were affordable to the average consumer, and crafting ideas for holidays. Her magazine was even published with special topics like baby showers, weddings, and entertaining. Aside from the magazine, Stewart was also lucrative in the publication of her how-to videos and syndicated television program. Stewart began hosting a television program, same title as the magazine, once weekly during the day for thirty minutes. The television show and the videos gave consumers the opportunity to watch her make certain crafts, cook specialty foods, or perform actual gardening tips first hand. Many consumers prefer to learn by visual example rather than just read about it. She also published over fifty books on various topics of home interest that compelled the average female consumer to explore their own levels of creativity.
Later points of success in Stewarts career can be attributed to her personal line of sheets, bedding, towels, curtains, and cookware. She even introduced her own line of interior and exterior paint for the home. The local department store chain, Kmart, contracted with Stewart and began selling her products exclusively from their market (Byron, 2002). This merger of sorts remained lucrative until Kmart began suffering losses beyond Stewarts control. While the business relationship still exists, Stewart has reportedly taken a loss due to Kmarts financial discord. Finally, Stewart contracted with Kodak. Details of this business venture are scattered, but assuredly, Stewart is promoting projects such as scrapbooking and family albums while providing Kodak with her personal endorsement.
Martha Stewart Living Omnimedia (MSLO) may have very well attributed to the stock scandal. Stewarts position in the company was highly stressful and demanding. As the country moved in and out of mini-recessions, Stewarts business suffered losses as well. The pressure to go further seemed ever present in Stewarts business. She was constantly coming up with new ideas to grasp the attention of the general public, especially college educated females who were homemakers.
Stewart can be credited for shaping the culture and atmosphere of MSLO. She is a take charge woman who thrives on challenges and accomplishing tasks for the betterment of all involved. Stewart set a precedent with regard to how women view their homes and lives. She allowed her own personal creativity and influences to take a dramatic role through her position of CEO. She offered tips for cleaning solutions that were healthier to use when cleaning. She cultivated recipes that were low in cholesterol and sodium as to promote better eating habits. She shared ideas for creating a beautiful wedding, baby shower, or other holiday entertainment that was affordable to the average consumer. Stewart was dedicated to her customer base.
Some have questioned Stewart given her superior intellect used to run her business in contrast with her low level of ignorance that permitted her to behave in an unethical manner concerning the selling of her stocks. The only valid reasoning to offer in this scenario is that she followed the advice of her broker. Stewart possesses a genuine leadership quality. She knows how to inspire individuals to try new things within reason. She managed to build a lucrative business out of nothing and make it a worldwide success. Her keen insight and business mind have taken her company to new heights of great success. She is an obvious self-starter, inventor, and marketer. Stewart is a people person and projects this image in her work. The true essence of Martha Stewart should be realized by everyone and that being that she is human. Humans make mistakes as no one is perfect.
Analysis
The unethical actions and disregard for social responsibility are concerns when speaking of Stewart as a person. It is disturbing to know that the simplest of human concern was overlooked for another motivating reason. Throughout the course of Stewarts trial, it can only be said that she behaved in an unethical manner on two occasions. Her behavior was unethical because of her prior knowledge of the stocks being sold and the reason behind it. While the legality of her prior knowledge of the FDA information has been determined to not be insider trading, all signs are still indicative of having privileged information. The second demonstration of unethical behavior was her lying to investigators. There was clearly no reason to lie. Stewarts lying could be attributed to fear of the consequences or out of a guilty conscious.
As a figure in the social limelight, Martha Stewart assumed the responsibility to set an example and be a role model to others. Her every action was looked to as an example to live by. Young men and women everywhere were let down by her unethical behavior and complete disregard for her admiring public. Stewart even lied to the public when she issued a public statement concerning the nature of her charges in the indictment. She stated that she was innocent and would be completely exonerated. She even started a website before the trial claiming her innocence (The Associated Press, 2004). Once convicted, admirers and fans felt lied to as well. Once a trust is broken, it is almost impossible to possess it ever again.
Stewarts actions coincide with the consequential theory perspective. The consequential theory clearly states that ones actions will be judged and determined by the outcome (Desforges, 1995). This is especially true in the case of Martha Stewart. Her actions were judged by her conviction on all charges in court. Further consequences were addressed by having to serve time in a federal prison and extreme fines issued from the court. Aside from facing the legal consequences, Stewart also faced personal consequences, too. She was forced to step down from her CEO position at MSLO. Over the following months, she saw poorly generated revenues for her company as once loyal customers were boycotting her business as a sign of disapproval of her actions. Stewart must also endure the stigma and tarnished image now carried by her name. She will forever be remembered as someone who lied.
The Deontological theory perspective can also be applied to the case of Martha Stewart. The Deontological theory perspective encourages moral obligation based on the duty and rights of an individual during an ethical dilemma (Desforges, 1995). It forces one to question the risk involved versus the benefit. Stewart could have easily looked ahead to the benefit of selling her ImClone System stocks and then compared the risk involved for using the information received about selling them. Sometimes people act before they think a situation through completely. Thinking and reviewing a circumstance after the fact is pointless. Stewart thought about her actions only after investigators wanted to question her. In realizing her actions to be wrong, she attempted to cover her tracks by altering a phone log. These actions only made a bad situation much worse for her. Stewart should have slowed down and thought everything through before acting. It would have saved her a great deal of aggravation, stress, and misery.
Humanist theory perspectives apply to almost every position. Carl Rogers, a renowned psychologist, worked diligently to develop the humanistic approach to human behavior. In doing so, he was able to determine that each individual is responsible to fix their own dilemma. He also theorized that everyone is born with the desire to make good choices in life, but the influences that individuals succumb to cause one to make bad choices instead (Desforges, 1995). Martha Stewart fundamentally made the choice to sell her ImClone System stocks at the urgency of her broker, who in this scenario was the bad influence. Now in the aftermath of all the legal entanglements, Stewart is responsible for putting her life back together. She must put forth the effort to reclaim her place in society and prove that she can be trusted and respected again, not because of her celebrity status but because she has earned it.
The Humanist theory perspective is most fitting to the case of Martha Stewart. It emphasizes one taking responsibility for their actions by forcing one to take personal accountability. Stewart is fully capable of fixing the mess in her life. The fact that she lied and broke a trust with her supporters will not make it an easy task to be handled. She has already been shown to be making strides in the general direction of this accomplishment. She has been contracted with Kodak for publicity purposes, and she is still contracted with Kmart. While her business may never be as influential as it once was, Stewart has been given the opportunity to rebuild her career. The Humanist approach that Stewart takes at this point will determine if she is capable of righting her wrongs within society and within her life.
Martha Stewart has been subjected to many legal opinions concerning the facts of the case. It is nearly impossible to decipher as to whether or not Stewart had mens rea or actus re in this matter. In order for Stewart to have had mens rea, then her state of mind must prove intent when committing the crimes. Actus rea would purport liability through the physical components of the crime. It is only speculation that allows one to suggest what Stewarts state of mind could have been, and speculation is a sustainable objection in a court of law. However, it is plausible that Stewart did have mens rea if coupled with corpus delecti. Corpus delecti is determined through the material substance upon which a crime has been committed. The proof of the sale of the stocks would prove that corpus delecti did exist and would substantiate that Stewart did have mens rea.
Martha Stewart is protected under the articles of the United States Constitution just like every other American citizen. It is a question of intrigue to know why she did not exercise her Fifth Amendment right and refuse to answer certain questions during the investigation. Another question that comes to mind is in knowing if Stewart was given the Miranda Rights prior to the investigative interviews. Her defense counsel did make reference to the investigative interview questions during trial, but it did not appear to have any real bearing on the case at hand. The Fourth Amendment protects everyone from illegal searches and seizures of evidence and of ones person. The information gathered with regard to Stewarts personal stock and investment profile should have been guarded as not to breech any confidentiality barriers. It is not certain the extent to which federal investigators went to while investigating Bacanovic while employed at Merrill Lynch. It would be interesting to know if all his clients profiles were examined or just Stewarts profile.
Stewarts behavior and demeanor in the wrath of confusion was more than understandable. She seemed poised and rational throughout the entire proceeding. As then CEO of MSLO, she continued to conduct her business with diligence and integrity until stepping down. Her resigning her position was initially a formality until the legal matters were resolved, but unfortunately, the legal issues surmounted and managed to entrap MSLO in the scheme of things. Any other self-respecting American would have acted just as Stewart did regarding the investigation. No one would have volunteered information that could legally incriminate them for insider trading. Stewart is not an idiot and she knew that insider trading was the implication throughout the entire investigation. Any admission made on her behalf would have been an act of self-destruction and surrender. The fact that she lied was wrong, but it is not impossible to understand why she lied. It was her only defense mechanism, and she used it.
From a moral, ethical, and legal point of view Stewarts actions were wrong, wrong, and wrong again. This type of behavior from a business woman is deplorable despite the fact that this type of behavior occurs every day in the world of business. The problem with Stewarts behavior was that she got caught and was made an example of. Martha Stewart was definitively the scapegoat in this matter. She was naive to how the stock world worked and believed what her broker told her to do. She was remorseful after the fact, but the damage had already been done. Bacanovic and Faneuil knew full well what their motives were. They were looking to make a quick payday and used Stewart to achieve that demented personal goal. These types of
business practices take place all the time, but unless it is a celebrity involved the likelihood of hearing about it is slim to none.
Martha Stewart will always be remembered for selling stocks illegally, lying to investigators, and serving time in prison. She will most likely also be remembered for insider trading even though she was never tried or convicted for the crime. The implications alone from the federal prosecutors, the media, and financial analysts have all suggested that this is in fact what happened. Stewart will never be able to enjoy the prior quality of influence and status that she worked so hard to attain. Her image and persona have been tainted by the criminal record she now holds. Business leaders will remember what occurred and will use it as a platform of how not to behave or conduct business. Stewart is responsible for setting both a bad and a good example for future business behavior.
Hindsight always has perfect vision. In the case of Martha Stewart, there still linger many questions about the case, especially before she was indicted. The entire matter could have been avoided if Faneuil would have never relayed the message to Stewart. Instead, he could have contacted the proper authorities to report the instruction given him by Bacanovic. Faneuil would have invariably been protected under the Whistle blower laws of the United States, and likely been regarded as a hero for looking out for Stewart. It is also questionable as to why Stewart did not consult with her attorney prior to conducting such a business venture. If she had done so, her attorney assuredly would have advised against the selling of her ImClone System stocks and explained to her why it was illegal. In order to prevent anything like this from happening again, one must remember that if it seems too good to be true, then in all likelihood it probably is. Everyone can learn by what has happened to Martha Stewart merely because she followed the advice of her broker. Making mistakes is the nature of being human, but what is taken from the experience is what makes the person.
Conclusion
Martha Stewart was a dominating force in the business world for many years. She managed to build a business from the ground up based on decorating tips, cooking, gardening, planning weddings and baby showers, holiday entertaining, and how-to ventures. She marketed a television program, books, videos, and a magazine for the public to enjoy and utilize. While she is intellectually creative beyond reason, she is equally as nave when it comes to handling her business affairs. Stewart served five months in prison for crimes that she truly was not the sole proprietor of. She was taken advantage of by her own broker, and as a result now carries a permanent criminal record for the rest of her life. Her celebrity image has been tainted by the nature of her crimes of making false statements and perjury. She has lost control of her business and the respect of many supporters and admirers. With all of the legal issues and controversy contained therein now behind her, she has taken on the task of rebuilding her life and is attempting to restore her legacy. This is a heavy undertaking. Stewart is plunging forward and showing the world that she is not defeated. It is almost a guarantee that she will avoid the stock market altogether, however it will take much time for her to regain the trust that she lost as a result of the whole ordeal. Martha Stewart is a prodigy that does deserve to be admired and respected. She is only human and is entitled to make mistakes. Underneath all the legal documentation, speculations, and convictions, Martha Stewart is still a creative genius with a goodwill and strong soul.
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