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The Martha Stewart Insider Trading Case. Fallen Leadership. In this presentation:. the charges & background Stewart’s & public reaction the cost of scandal what would you do?. The charges.

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Presentation Transcript
slide1

The Martha Stewart

Insider Trading Case

Fallen Leadership

In this presentation:

  • the charges & background
  • Stewart’s & public reaction
  • the cost of scandal
  • what would you do?
slide2

The charges

  • Stewart sells nearly 4,000 shares of Imclone stock worth $228,000 the day before it plummited (due to FDA’s non-approval of Imclone’s new cancer drug)
  • She sold to avoid losses of $45,000
  • Stewart went so far as to delete a computer log of a phone message in which Bacanovic (broker) told her he thought ImClone was "going to start trading downward," according to the indictment.
  • Stewart allegedly lied to investigators and stated that she had ordered a stop-loss on her stock at $60
  • A 41-page indictment unsealed in Manhattan federal court charges Stewart with securities fraud, obstruction of justice, conspiracy and making false statements to prosecutors and the FBI.
slide3

Fan Mail...

“Stewart holds a Series 7 license. As a licensed stockbroker, she knows her actions may have well been illegal. She's not just some innocent who made a mistake or wanted to save her investment.”

“First, before you rush to defend the sainted Martha, you should read the two bios on her, Just Deserts, by Jerry Oppenheimer and Martha, Inc. by Christopher Byron. In those books, you will get a portrait of a woman who has pretty much terrorized and victimized everyone she's come across, including her ex-husband. More importantly, the portrait of someone willing to cut corners to make a buck comes through clearly. Questions about her ethics didn't start in 2001, but dogged her through her career as both stockbroker and caterer. There are ample stories about her cutting corners and cheating or misleading partners going back to the 1970's. “

slide4

“Instead of trying to gain sympathy, she's tried to mislead Congress, bully the prosecutors into dropping the charges, and basically shove this aside like it was trivial, while investors in MSO took it in the neck. They had invested in the company because of her and they were now losing their investment because of her months of silence. “

“Stewart would have clearly been better off coming to a deal early on. Now, the SDNY is loathe to deal with someone they clearly feel is both dishonest and arrogant. “

“While people would like to say "it's because she's a powerful woman" or "she gave money to the Democrats," it's because she's a hateful person who has collected enemies over the years. “

slide5

An Open Letter From Martha StewartTo My Friends and Loyal Supporters,After more than a year, the government has decided to bring charges against me for matters that are personal and entirely unrelated to the business of Martha Stewart Living Omnimedia. I want you to know that I am innocent - and that I will fight to clear my name. I simply returned a call from my stockbroker. Based in large part on prior discussions with my broker about price, I authorized a sale of my remaining shares in a biotech company called ImClone. I later denied any wrongdoing in public statements and in voluntary interviews with prosecutors. The government's attempt to criminalize these actions makes no sense to me.

I am confident I will be exonerated of these baseless charges, but a trial unfortunately won't take place for months. I want to thank you for your extraordinary support during the past year - I appreciate it more than you will ever know.

For more information, please visit the special website I have established for you at www.marthatalks.com. I will do my best to post current information about the case, and you will be able to contact me there at martha@marthatalks.com. I look forward to hearing from you.

Sincerely,

Never say die!

slide6

The indictment does NOT allege that Martha Stewart was provided inside information by Sam Waksal about ImClone’s application for its cancer drug Erbitux – or about anything else.

  • The indictment does NOT allege that Martha Stewart knew the reason why Waksal placed an order to sell ImClone shares on December 27, 2001 – only that he was trying to sell.
  • The government did NOT file criminal insider trading charges against Martha. Even though insider trading was the subject of the criminal investigation that she supposedly obstructed, the insider trading charge is included only in the civil complaint.
  • The government did NOT allege perjury by Martha. She gave two voluntary interviews to investigators.
  • Martha did NOT produce an inaccurate telephone log to government investigators. The government acknowledges that she "temporarily" made changes to the log and then "directed her assistant to return the message to its original wording."
  • Martha and the Waksals were NOT the only ones selling ImClone shares on December 27, 2001. On that day, more than 7.7 million shares were traded and the price fell from $63.49 at the opening of trading to $58.30 at the close of trading.
slide8

The Economic Cost$

of the Scandal

  • Martha Stewart Living Omnimedia has reported 4th quarter loss of $2m due to high legal fees & loss of sales
  • Revenue from publishing unit fell 30% in first 9 months of 2003
  • Stewart’s television network holiday special was cancelled resulting in TV revenues dropping from $9.6m a year ago to $6.4m
  • Shares have fallen from $19 to just over $9
  • In 2003 Stewart reported that legal fees, lost business, & lost opportunities due to the Imclone insider trading scandal had cost her over $700m
  • A conviction could also result in $2m in fines & 10-16 months in prison if found guilty of all charges
  • Employees wept after hearing the conviction
  • She has lost her position as Chair of the Board & CEO
  • Discount products & move away from brand name
slide9

The fallout (9-22-04)

  • Martha was sentenced in July 2004 to five months in prison for obstructing a federal securities investigation.
  • She initially intended to make an appeal but then decided to get on with the prison term while continuing the appeal.
  • She has dropped her personal “Letter from Martha” in Living, and her name is reduced in size, while Living has increased
  • Her Omnimedia publishing division posted a quarter 2004 operating loss of $5.2 million.
  • The worth of the company has dropped 73% following the scandal
  • Advertising pages have declined as much as 33%
slide10

Your group is a consultant to

Martha Stewart Living Omnimedia…

  • Based on what you know of risk factors, what would you have recommended to the strategic planners before the crisis?
  • Image: why do so many people dislike her? How might you have prevented this negative image?
  • Evaluate her crisis communications strengths & weaknesses (spokesperson, Martha’s comments, website, etc.)
  • Following this crisis, what might you recommend to remake the image?
slide11

Update on Martha: Still on a roll…

  • MS Apprentice to end (9-14-05)
  • Martha Stewart Vintage Wine-- Martha Stewart Living Omnimedia shares rose 13 cents, or more than 1 percent, to $11.86 on the New York Stock Exchange. (9-14-07)
  • Martha conflicts with residence town of Katonah over use of town’s name as trademark (3-27-07)
  • Comcast launches Martha Stewart on Demand (10-1-07)
  • Martha Stewart Crafts (new how-to program in 9-07))