Martha Stewart

Martha Stewart Case: Legal and Ethical Issues

Shakhyar Neog

University of Redlands

Martha Stewart Case: Legal and Ethical Issues

Introduction

The purpose of this case report is to examine the legal and ethical issues in the Martha Stewart case regarding the sale of the shares of ImClone .The main players in this case study are Martha Stewart, Peter Bacanovic her stockbroker at Merrill Lynch and Stewart’s close friend Sam Waskal CEO of ImClone. Bacanovic was also the stockbroker for Waskal.

On December 27, 2001, Martha Stewart got a message from her assistant who was in turn was informed by Bacanovic that Sam Waskal was selling his shares of stock. She obtained the information that ImClone was going to start trading down. Stewart who was on vacation called her broker’s office and asked Bacanovic’s assistant to sell all her 3928 ImClone shares of stock. The next day, ImClone announced that the FDA application for their drug Erbitux was found inadequate. ImClone stock dropped sixteen percent. Thus Martha Stewart saved herself and her company from a potential 46,000-dollar loss. She later claimed that the reason she sold her shares was because of a stop-loss order she placed if the stock dropped below 60 dollars. (Boatright, J. R. (2013) pp. 390-392)

Legal Issues

Contrary to popular belief, Martha Stewart was not convicted of insider trading although there was an attempt to bring her up on civil charges. She was charged and convicted of conspiracy, obstruction of justice and perjury.

Obstruction of Justice:

Ms. Stewart informed federal investigators that she had a conversation with Peter Bacanovic during her vacation when in fact she only had a conversation with his assistant Doug Faneuil. She also told them that she could not recall whether or not they spoke about Sam Waskal’s decision to sell his stock feigning memory loss. Martha Stewart accessed the phone message log on her assistants computer and tampered with the phone logs. She changed the...