Martha Stewart – Criminal Liability

Topics: Stock market, Crime, Federal Bureau of Investigation Pages: 6 (1586 words) Published: October 7, 2013

Martha Stewart – Criminal Liability
Carnell C. Holmes
Austin Peay State University

Business Law
Professor Elizabeth Rankin
December 7, 2012




Most people that are in high profile positions would rather receive positive accolades for their great accomplishments. Committing fraudulent acts or being unethical is not what a person with a thriving business would want to connected with. A name that most households have grown familiar with was, Martha Stewart. Martha Stewart was associated with an array of cookbooks, and she was also able to influence her designing style throughout many homes. Aside from being a phenomenal trendsetter, Martha Stewart was convicted of obstruction of justice and was investigated for insider trading. Both offenses in a business setting have been considered to be a white collar crime. Unethical decisions can be detrimental to the company and the person committing the crime.

Martha Stewart, CEO and chairman of Martha Stewart Living owned a large amount of shares of ImClone Systems Incorporated stock.

ImClone is an oncology company that is

committed to the treatment and research of patients that have various forms of cancer. Martha Stewart was informed in 2001 by the stockbroker that she and the CEO of ImClone that she should sell her shares of stock. The CEO of ImClone had done the exact same because a new prescription drug that the company had invested a great deal of money was not being approved by the Food and Drug Administration. Martha Stewart sold her 4,000 shares of stock. found the following:



Stewart avoided a loss of about $51,000 by selling nearly 4,000 shares of ImClone stock on Dec. 27, 2001, rather than the next trading day, when the stock tumbled after regulators rejected the company’s application for a key center drug. The amount of $51,000 was not a substantial amount, however, the Securities and Exchange Commission determined that both Martha Stewart and CEO of ImClone to sell their shares of stock on the same day. The SEC had noticed the fortuity and wanted to know the connection between the two. When asked by the government why she sold the stock before it crashed and had not gone public; Ms. Stewart lied and informed that anytime the stock fell below $60.00, she agreed with her stock broker she would sell. “Once a company makes poor ethical choices it carries the baggage of those choices despite successful and sincere efforts to reform (Hennings, 2009). This type of trading is called insider trading. According to Investopedia, Insider trading can be either legal or illegal it is established being illegal when the pertinent information is not presented to the public.

Illegal insider trading is when the non-public

information is tipped and given to others to avoid financial burdens and or gains. Directors are not the only individuals that can be penalized or convicted of insider trading. “Brokers and even family members can be guilty” (Investopedia, 2012). The explanation was not believed because she knew the CEO of the company and he could have informed her to sell her stock. It was later determined that is very unethical and not tolerated to lie to federal officials regarding the investigation of possible insider trading.

According to (2004), the former

assistant of Merrill was going to testify that the government account of fraud was correct and that he was given gifts to lie on behalf of Martha Stewart. Before the government was able to announce publicly what she was charged with, Stewart sold a substantial amount of her



company, Martha Stewart Living Omnimedia Inc. stock to protect her financially; and did not inform her company’s shareholders of it. Ms. Stewart also altered the phone messages and telephone logs to appear...

References: Jennings, M. (2012). Business: Its legal, ethical, and global environment (9 th ed.). Mason, OH:
South-Western Cengage Learning. Wires. (2004). Retrieved December 5, 2012, from
Uniform Crime Reporting (UCR) Data. Retrieved December 5, 2012, from
(2012). Investopedia. In Insider Trading . Retrieved December 5, 2012, from
(2004). Stewart Convicted on All Charges . In CNNMONEY. Retrieved December 7, 2012,
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