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Martha Stewart Prosecution Raises Controversy
While a New Parody Site is Making Waves on the Internet

Social Commentary and Investor Relations Issues

By Douglas Oliver

That web site is very funny. The music is good, too. Take a peek at it here if you enjoy Internet parody.

I am bitting my tongue today because my feelings about Martha Stewart are pretty neutral generally. I was never a fan of Ms. Stewart's television show and never owned stock in her media company. Home furnishings, table settings and pretty cakes are not my cup of tea.

But I am grateful personally that I did not have my money invested in her company [NYSE MSO.].

People are both highly supportive and very negative in their opinions about her. I discovered that for myself recently when I raised some questions with casual friends. There was a brief discussion that quickly turned very strained. People were getting edgy and a bit miffed. It seems that most people have strong feelings about Martha.

There has been a great deal of speculation about what she may have done, or about what she really did and what she claims she did not do. She is a very high profile person and virtually lives in the eye of the media. She is a natural target for federal prosecutors because of her celebrity status.

Some would say she is the "perfect target" if the prosecutors have a really strong case.

Federal prosecutors are very diligent. On occasion they are even diligent in the extreme. They spent months investigating Ms. Stewart's stock transactions and allegations of insider trading. But they eventually decided not to charge her with insider trading and sought a grand jury indictment on other serious allegations. According to the San Francisco Chronicle she has been charged with "conspiracy, securities fraud and obstruction of justice, and [accused] of lying to government investigators."

Quoting from that report:

* * * [T]he Wall Street Journal's editorial page . . . noted that Stewart has not been criminally charged with insider trading, for which she was initially investigated. The Journal compared her offenses to fibbing about speeding. And given the lack of insider-trading charges, some criminal defense lawyers say that she has been unfairly pursued. * * *

Stewart can be charged with lying to prosecutors or to other government officials, even if she was not under oath, under a little-known federal law that lawyers call 1001, for its section number in the U.S. criminal code. Criminal defense lawyers argue that the law is overly broad. * * *

Of course, Ms. Stewart is presumed to be innocent until proven guilty under our judicial system.

That being said, I have to wonder about a few simple issues. My question is one that raises issues of the best strategy for her company and its stockholders in light of the long investigation. The company's stockholders have suffered through a lot of uncertainty.

From June 6th last year until a few days ago the stock price in Ms. Stewart's company went on a roller coaster ride. Its highs and lows reflect daily news reports on the ImClone investigations. Within three months last year (June 6th to September 6th), company stock fell from about $ 19.01 a share to about $ 7.64 a share. Last Friday the stock closed at about $ 10.24 a share.

On October 3rd, Stewart resigned from the board of directors of the New York Stock Exchange. Right after the grand jury indictment was announced, on June 4th, she resigned as CEO and took the title Chief Creative Officer. View Time Line

Why did Ms. Stewart wait so long to resign as the CEO of her company? Certainly, Martha Stewart is a "Brand Name." But the brand itself will not suffer with her identified as the Chief Creative Officer as opposed to its CEO.

A case might be made that the brand has suffered of Martha's focus on what was best for her rather than what was best for the company and its stockholders. The debate is raging now on the Raging Bull Message Boards and on the "Talk Left" web site.

Why did she wait?

Posted by Douglas Oliver on June 8, 2003 at 8:10 AM
(Updated on June 8th at 1:57 PM)