Martha Stewart's Greatest Lesson
Martha Stewart has taught millions about food, decorating, and entertaining. That is nothing as compared to the greatest lesson of her life. Here is the story.
Samuel D. Waksal, the founder of Imclone Systems Inc., and Stewart were friends. Waksal’s company developed a drug to treat cancer. While it was waiting for the Food and Drug administration’s approval, Stewart bought 3,928 shares of Imclone stock.
In December of 2001, believing that the Food and Drug Administration was about to decline approval of their new drug, Waksal and his family began to sell their shares of Imclone. Peter E. Bacanovic, Stewart’s stockbroker, called to tell her that Waksal was selling his stock. Apparently, based on that information, on December 27, 2001, Martha Stewart sold her shares. Sure enough, the Food and Drug Administration did not approve the new drug. By selling when she did Martha made about $50,000.
There was just one problem. Selling a stock because of an inside tip before it is public knowledge is illegal. It is called insider trading. Waksal was eventually sentenced to seven years for it. The SEC investigation of Waksal spilled over to Stewart.
The plot thickens. Evidently, Stewart and Bacanovic concocted a story that they had a prior agreement to sell the stock if it fell to $60 a share, which it did do that day. Then, they repeatedly lied to investigators. So, instead of being charged with insider trading, Martha was charged with conspiracy, obstruction of justice, and two counts of lying to investigators. On Friday March 6, 2004 Martha was found guilty on all four counts. The maximum penalty is 20 years in jail and $1 million in fines.
Why did the US Attorney’s office “throw the book” at Martha Stewart? As compared to the billions of dollars worth of financial damage done by Enron and WorldCom, there was a relatively small amount of money involved in the Stewart case. David N. Kelley, the Interim US Attorney, said he hoped that this case would send a message that we will not tolerate dishonesty and corruption. He went on to say that lying to investigators strikes at the integrity of the judicial system.
That is the lesson. Don’t lie. In Colossians 3 Paul says, “Put to death your members which are on the earth: fornication, uncleanness, passion, evil desire, and covetousness, which is idolatry” (Col. 3:5) and “put off all these: anger, wrath, malice, blasphemy, filthy language out of your mouth” (Col. 3:8). Then he adds, “Do not lie to one another” (Col. 3:9). Instead of giving another list of sins, Paul singles out the one sin of lying, making his command dramatic and emphatic.
On Friday March 5, 2004, the stock of Martha Stewart Living Omnimedia Inc. plunged $3.17 from $14.03 to $10.86 (23%). Martha, who owns 61% of the stock, lost $95 million dollars. Had she not lied, none of this would have happened.
© G. Michael Cocoris, 3/9/2004
Samuel D. Waksal, the founder of Imclone Systems Inc., and Stewart were friends. Waksal’s company developed a drug to treat cancer. While it was waiting for the Food and Drug administration’s approval, Stewart bought 3,928 shares of Imclone stock.
In December of 2001, believing that the Food and Drug Administration was about to decline approval of their new drug, Waksal and his family began to sell their shares of Imclone. Peter E. Bacanovic, Stewart’s stockbroker, called to tell her that Waksal was selling his stock. Apparently, based on that information, on December 27, 2001, Martha Stewart sold her shares. Sure enough, the Food and Drug Administration did not approve the new drug. By selling when she did Martha made about $50,000.
There was just one problem. Selling a stock because of an inside tip before it is public knowledge is illegal. It is called insider trading. Waksal was eventually sentenced to seven years for it. The SEC investigation of Waksal spilled over to Stewart.
The plot thickens. Evidently, Stewart and Bacanovic concocted a story that they had a prior agreement to sell the stock if it fell to $60 a share, which it did do that day. Then, they repeatedly lied to investigators. So, instead of being charged with insider trading, Martha was charged with conspiracy, obstruction of justice, and two counts of lying to investigators. On Friday March 6, 2004 Martha was found guilty on all four counts. The maximum penalty is 20 years in jail and $1 million in fines.
Why did the US Attorney’s office “throw the book” at Martha Stewart? As compared to the billions of dollars worth of financial damage done by Enron and WorldCom, there was a relatively small amount of money involved in the Stewart case. David N. Kelley, the Interim US Attorney, said he hoped that this case would send a message that we will not tolerate dishonesty and corruption. He went on to say that lying to investigators strikes at the integrity of the judicial system.
That is the lesson. Don’t lie. In Colossians 3 Paul says, “Put to death your members which are on the earth: fornication, uncleanness, passion, evil desire, and covetousness, which is idolatry” (Col. 3:5) and “put off all these: anger, wrath, malice, blasphemy, filthy language out of your mouth” (Col. 3:8). Then he adds, “Do not lie to one another” (Col. 3:9). Instead of giving another list of sins, Paul singles out the one sin of lying, making his command dramatic and emphatic.
On Friday March 5, 2004, the stock of Martha Stewart Living Omnimedia Inc. plunged $3.17 from $14.03 to $10.86 (23%). Martha, who owns 61% of the stock, lost $95 million dollars. Had she not lied, none of this would have happened.
© G. Michael Cocoris, 3/9/2004