The Trial of Martha Stewart

Syndicate 6:

Ginna Apryani N.Anindita ListyaningrumDebby IrawanAnggraeni OktaviaAdrian Chandra FaradhiptaAhmad M. Natsir Abdulrahim

Introduction

The Story:Beginning

Oct. 31, 2001ImClone Systems asks the

government to review Erbitux, its new cancer

drug.

Dec. 26, 2001 Waksal is tipped that the government will deny the

Erbitux, then tips his daughter to sell her

ImClone stock and tries to sell his own.

Dec. 27, 2001Stewart sells all of her

ImClone stock she owns.

Dec. 28, 2001 The FDA makes its decision

public.

On Dec. 31 The first trading day after the news, ImClone drops

18%.

Jan 3, 2002 Merrill Mynch report to SEC

for suspicions of insider trading

Jan. 7, 2002Stewart's broker, Peter

Bacanovic, tells SCE attorneys that he and

Stewart had agreed on Dec 2001, to sell ImClone if it fell

below $60.

Jan 16, 2002 Breakfast meeting between

Stewart and Bacanovic

Feb. 2, 2002Stewart gives the SEC,

federal prosecutors and the FBI the same information about the $60 stop-loss

order.

June 12, 2002Stewart issues a statement repeating her assertion that

she had a $60 stop-loss order.

June 18, 2002Stewart insists she is "fully"

cooperating with authorities.

Oct. 2, 2002Former Merrill Lynch & Co. assistant Douglas Faneuil pleads guilty to taking a

payoff to keep quiet about the Stewart stock trade.

June 4, 2003Stewart and Bacanovic are

indicted on nine federal counts in the ImClone

scandal.

The Story:Revealation

Jan. 27, 2004Prosecutor claims in

opening statements that Stewart sold ImClone stock

based on a "secret tip," then lied to cover it up.

Feb. 3-4Faneuil testifies that

Bacanovic ordered him to tell Stewart ‘the secret’ and pressured him repeatedly

to cover it up.

Feb. 19:Expert testifies ink Bacanovic used on

worksheet to make an “@60" notation next to

ImClone is different from other inks on the

document.

Feb. 23Heidi DeLuca, says she has

a memory of Bacanovic discussing plans to sell

Stewart's ImClone shares at $60.

Feb. 25Government plays tape of Bacanovic saying he never

discussed $60 plan with DeLuca.

Feb. 27Judge throws out securities

fraud count against Stewart.

The charge accused her of deceiving investors in her

own media company

March 3Jury begins deliberations.

March 5Stewart convicted on all

charges; Bacanovic convicted on all but one charge, making a false

statement.

The Story:Lawsuit

Questioning and Trial

An Unsettled Aftermath Merrill Lynch called SEC reporting

suspicions of insider trading Bacanovic: $60 stop-loss order Near the entry of ImClone notation

“@60” appeared

Interviews Martha said that she was on vacation

and didn’t want to worry about the stock market

She was annoyed at the end of the interview

Other conversation occurred but unrecorded

Stewart said that the two (she and Bacanovic) had set up a $60 sell order

Trial U.S. attorney argued that Stewart was

lying to federal agents, obstructing justice, committing perjury, fabricating evidence and cheating investors in the stock market

Stewart’s attorney argued that she was innocent of all charges

Testimony Disturbing email messages Questions why Faneuil’s memory for

Stewart’s call was very sharp Maria Pasternak remembering Stewart’s

words, “Isn’t it nice to have brokers who tell you those things?” – disregarded

Mark “@60” written with unidentified pen

Verdict and Sentence Guilty found in lying and conspiring to

lie to conceal the fact Martha Stewart was then sentenced to

prison

Ethics Framework

The Facts Stakeholder analysis:o Waksals: company instabilityo Martha Stewart: by selling shares, she

hoped to minimize her losso Merrill Lynch: credibility insider trading

is prohibited by law and the company’s policy

Merrill Lynch’s Policy

Relevant Standards Fiduciary Dignity Property Transparency Reliability Fairness Citizenship Responsiveness

Martha Stewart Fiduciary: none – she had no obligation as

she was not in an official position in ImClone

Dignity: harnessing Faneuil – indicated by email (negative)

Property: safeguarding her properties (positive), didn’t respect other shareholders (negative)

Transparency: changing phone log (negative)

Martha Stewart Reliability: lying to federal’s attorney

(negative) Fairness: unfair competitive advantage

(negative) Citizenship: didn’t cooperate with

investigator (negative) Responsiveness: annoyed tone when

asked (negative)

Peter Bacanovic Fiduciary: instructing insider trading

(negative), bribery to Faneuil (negative) Dignity: humiliation to Faneuil at court

(negative) Property: didn’t respect others’ property

(negative) Transparency: adding mark of @60

(negative)

Peter Bacanovic Reliability: went against Merrill Lynch’s

policy (negative) Fairness: unfair by doing insider trading

(negative) Citizenship: doing things against law

(negative) Responsiveness: neglecting the

investigator (negative)

Douglas Faneuil Fiduciary: doing insider trading – knowing

it’s against Merrill Lynch’s policy (negative) Dignity: if true, saying bad words against

Martha Stewart (negative) Property: didn’t respect ImClone’s

confidential information about financial instability (negative)

Transparency: telling what he knew to the investigators (positive)

Douglas Faneuil Reliability: went against Merrill Lynch’s

policy (negative) Fairness: giving unfair information

(negative) Citizenship: cooperating with SEC and

law (positive) Responsiveness: giving testimonies

(positive)

Maintaining Objectivity Visibility test: Would we be comfortable

if this action were describe on the front page of a respected newspaper?

Generality test: Would we be comfortable if everyone in a similar situation did this?

Is this how we’d like our leaderships to be remembered?

Questions

Question 1: Did Martha Stewart commit the crime of

insider trading when she sold her ImClone shares on Dec 27, 2001?

Our Answer: Martha Stewart had no real obligations to

other shareholders of ImClone as she was not in an official position within the company no breaches of fiduciary duty

By getting information from Faneuil and Bacanovic, she possessed unfair advantage

Yes, she did insider trading by possessing information of company’s instability in addition to being deceptive to authorities

Question 2: Did the U.S. attorneys and the SEC use

good judgment in indicting Martha Stewart?

Do you believe that her indictment was based on evidence of a serious crime, or do you believe that they have additional motives?

Our Answer: Not really. In the end the trial is about

insider trading inside her own company and about Stewart’s misleading federal investigators

We believe that her indictment was mixed between based on evidence of her crime and that the attorneys have additional motives

Question 3: Do you agree with the jury that she was

guilty beyond a reasonable doubt of the conspiracy and obstruction of justice charges?

Our Answer: No, Marta Stewart did wrong things

indeed, but all that happened was about her ethics

Question 4: Was her sentence appropriate? Were the

sentence of Peter Bacanovic and Douglas Faneuil appropriate?

Our Answer: Not really, since she’s not the main

actor behind the fraud. Bacanovic should be sentenced longer than Stewart did. Also it was better for her to do public services rather than sentenced to jail

Thank You