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She started her magazine, Martha Stewart living back in 1991 after a series of other ventures in catering. Later on in 1993, she had a television show, which was an outstanding success and marketing tool for the brand name. What has made her immensely famous is the investigation by the Securities and Exchange Commission for insider trading. She was accused of selling 3,928 shares of ImClone systems in December 2001 a few hours before the food and drug administration FDA announced the rejection of the which was a drug that was about to be introduced in the market. When she was convicted, Martha said, "I could do it , I am actually a principled camper. I can sleep on the ground. Many saintly people have gone to prison. Look at nelson Mandela. "
Critical Ethical Issues in the Trade
The chief executive officer of ImClone systems Sam Waskal and Martha Stewart had a common broker and when the broker realized that the CEO was liquidating the company stock in an effort not to incur massive losses Martha was informed. Being a busy person and well networked her ears in the stock market had to be those of the broker and it was best if she also liquidated whatever ImClone stock she had. Sam Waksal transfer of close to 80,000 shares to his daughter then selling them without the approval of the company's general counsel on 26 December 2001 while Martha sold hers the following day raised questions. Their broker Peter Bacanovic and his assistant must have communicated with Martha, which was viewed as unethical (Hoffman, 2007).
Although it is difficult to identify victims of insider, trading in a certain case it can be argued that since the executives have access to more information about a company than the public then they are more aware of the direction the company is taking. In this case, Sam Waskal realized that a major setback to the company was coming and that was why he was liquidating his stock before the information went public which is unethical.
Insider trading being unethical since it involves buying and selling of securities due to possession of non public information about the specific securities which is in breach of the fiduciary duty then it is possible that Martha had no such information. The Securities and Exchange Commission specifies that insider-trading activities meet specific definitions with the basic one being that executives of a company have a fiduciary responsibility to investors. Though this leaves it as a moral question on whether an executive is supposed to share information that could negatively impact on the company's share (Mc Gee, 2008). In this case, Martha had no fiduciary responsibility but the CEO had.
Another ethical issue that is seen in the case is why the executive breached the law when he forged the signature of the company counsel whereas he knew exceptionally well that the shares he was about to sell were held as collateral for loans. Since the executive is an employee of the shareholders who are owners of the company then his actions should be of to the best interest of them, which was not the case (Thompson & Edelman, 2009). Investors put in money in a company with the hope that the management will make decisions that increase the value of their shares and not otherwise.
Martha's claim of an existing standing order of $ 60 stop-loss placed in November of the same year was seen as a lie to the commission for either her or the broker since the stock could have been sold immediately it deeper below $ 60 but this was not the case. This was viewed as a means of collusion by the two after engaging in unethical behavior. The decisions she made after the sale of the close to 4000 shares were what led to her conviction. The initial action of selling the shares was in line with the law since she might have done it unknowingly of what was happening. This can be proved by the message she left for Sam Waksal before selling her shares.
The decision to collude with her broker and giving false information to investigators from the commission was terribly wrong. Martha knowingly engaged in an illegal behavior to shield the broker and his assistant however, this is what earned her the hefty charge and jail term. She was found guilty of perjury and collusion charges when she tried to convince investigators that she had a $ 60 stop-loss order (Hoffman, 2007).
If Martha Stewart had initially agreed to the fact that the broker had given her some information and this was the reason for the quick sale of her shares or even if she could have just not sold the shares after she got the information she could avoided the jail term. She suffered a hefty loss almost four times what she could have lost if she kept the shares.