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Saturday, Jul 11, 2009
Grandstanding members of Congress, abetted by the celebrity-obsessed news media, are blowing Martha Stewart's stock trade way, way out of proportion.
Aug 10, 2002 | Two or three weeks ago, it looked as if domestic maven Martha Stewart had weathered the worst of her insider trading scandal. Her company, Martha Stewart Living Omnimedia, had taken a beating on Wall Street as investors fretted about the fallout of negative publicity. But interest in her case seemed to be waning.
Perhaps because placed alongside the fraud that drove companies like Enron, Adelphia and WorldCom into the ground, costing investors billions and thousands of employees their jobs, as well as the corrupt practices among leading accounting firms like Arthur Andersen, Stewart's questionable stock trade suddenly looked insignificant. Stewart profited just $48,000 from her now infamous transaction.
Yet during the dog days of August, the story has returned from the dead. Thanks to publicity-hungry members of Congress, who probably shouldn't even being wasting taxpayer money chasing Stewart's dubious alleged crime, and an appreciative press corps -- lead by the New York Times and the Wall Street Journal -- that laps up every Capitol Hill allegation and innuendo without bothering to put the celebrity-driven story in any sort of context, Stewart is back on the grill.
It's a sad example of what happens when congressional investigators and overly excited reporters feed off each other while pursuing an unsympathetic figure.
All this for a relatively minor story that hasn't budged much since June. Stewart, a close friend of ImClone CEO Samuel Waksal, sold her biotech company stocks on Dec. 27, one day before ImClone's value crashed when the Food and Drug Administration refused to OK a cancer wonder drug. Stewart insists she never knew of the pending bad news, and that she and her Merrill Lynch broker already had an agreement in place to sell her ImClone shares once they dipped below $60, which they did on Dec. 27. The broker's assistant now insists that explanation was concocted afterwards and that Stewart knew Waksal and his family members were dumping stock. Basically, it's a he-said/she-said kind of story.
Naturally, Congress and the press like the assistant's story better since it keeps the story alive. But even his story should be of minor concern. He claims on the morning she sold, Stewart knew Waksal was dumping his stock. That's because her broker, on vacation, ordered the assistant to tell Stewart about Waksal's stock activity. If that did happen, Stewart at the most would be guilty of misappropriating insider information, but only if she knew Merrill Lynch policy forbade brokers from discussing what other clients were buying and selling. And that's why criminal charges of insider trading against Stewart remain so remote. Instead, she's more likely to face civil charges from the Securities and Exchange Commission.
For Stewart to be guilty of serious insider trading she would have to have known that Waksal was dumping his stock because of the FDA's pending drug rejection, and that that information was meant specifically for her. To date, nobody involved, not even the broker's assistant, has suggested that. But don't look for that fact to be highlighted by congressional investigators or the press.
Also, don't look for many mentions of a document Merrill Lynch & Co. handed over to Congress which showed that Stewart's broker had written "$60" in apparent reference to Stewart's claim that the two of them had agreed to sell ImClone if it fell below that value. Congressional investigators dismissed the document, saying they could not verify when the "$60" had been written. The press, too, soon tossed the document down the memory hole, preferring to report there's no evidence to suggest there was ever a $60 sell claim.
Instead, the press seems to take its cues almost exclusively from the office of Rep. Bill Tauzin, R-La., Stewart's most relentless critic.
They don't call Tauzin the "Cagey Cajun" for nothing. Knowing the shallow Stewart story will likely evaporate once Congress returns and takes up more substantial issues in September, Tauzin timed his latest press blitz for August's slow news days. The move has proven to be a bonanza. By calling for more documents, requesting a Stewart interview and then threatening to subpoena her to testify (even though Stewart's attorneys thought they had an understanding that no additional requests would be made before September), Tauzin, vowing to "widen the probe," rejuvenated one of the summer's guilty-pleasure sagas.
But has anybody in the press bothered to ask what the House Energy and Commerce Subcommittee on Oversight and Investigations is doing spending months investigating a private sale of 4,000 shares? Especially when the Securities & Exchange Commission as well as the U.S. Attorney's Office are doing the same thing? Doesn't the subcommittee, which has held hearings this year on nuclear power plant security, the collapse of Enron, climate control, energy policy, and Homeland Security, have better things to do with its resources?
