Man Without Qualities

Wednesday, July 30, 2003

Enron Game Called On Account of Reality III: Remembering Ms. Stewart

Remember Ms. Stewart? The alleged perpetrator of an "inside trade" of 4,000 shares of ImClone stock has been indicted for "obstruction of justice" by the Justice Department in an indictment that says all kinds of nasty things about her, but doesn't actually charge her with "insider trading." The SEC has also filed a civil complaint against her.

Martha Stewart gave an order to sell all of her ImClone stock, all 3,928 shares of it, and received an average price of $58.43. According to the SEC Complaint, in doing so, she avoided losses of $45,673.

Think about that: she avoided losses of $45,673. Wow. This is a case that the Justice Department and Securities and Exchange Commission really care about. I haven't seen the budget, but those two federal agencies must have spent many times that $45,673 already in taxpayer money coming after Ms. Stewart.

And they must have really stuck it to her in the settlement negotiations. Just imagine what would happen in the O-so-tastefully decorated Stewart household if the Justice Department and Securities and Exchange Commission were to offer her a settlement agreement along the lines of what they just signed up with J. P. Morgan Chase and Citigroup. That settlement offer would require that :

1. Ms. Stewart pay a fine in an amount much less than the $45,673 she saved from the suspect transaction (she could do this at the settlement signing from the change she keeps in her penny loafers).

2. Ms. Stewart neither admits nor denies the charges - but can put out a press release pointing out that she does not admit the charges.

3. Ms. Stewart agrees to put in tighter risk management controls for her future investing - and promises to submit to the agencies a revised set of standards within 60 days.

4. All potential civil and criminal charges that could be brought against Ms. Stewart are dropped and settled.

5. The regulators get to say things like: "This cases serves as yet another reminder that you can't turn a blind eye to the consequences of your actions," and "These settlements send the clear message that wealthy individual equities investors have an obligation to analyze and understand the consequences of their actions, and they will be held accountable for actions that obstruct justice."

Did I say just imagine what would happen in the O-so-tastefully decorated Stewart household? You don't have to, I'll tell you what would happen:


But, see, the regulators are really serious about the Martha Stewart case. They're not going to let her off with the kind of settlement agreement that banks that "know" they facilitated an alleged fraud worth, say, Seventy Billion Dollars to public investors get. No. The regulators want a settlement agreement from Ms. Stewart with bite. They want - they must have demanded - a settlement that makes Ms. Stewart admit she committed a crime! And the mere facts that (1) many people think that the regulators have probably got a pretty weak case against Ms. Stewart to take to the jury, and (2) Ms. Stewart has already lost her seat on the NYSE, her position as head of her own company, hundreds of millions of dollars in stock value, and much of her valuable reputation and public image, are not going to impede the stride of justice - this is a matter of principle, damn it!

It's not that there's a difference in regulatory standard here as between Ms. Stewart and the banks. We already know, because Larry Thompson, the deputy attorney general who chairs the Corporate Fraud Task Force, has told us: Corporations should not be treated leniently because of their artificial nature, nor should they be subject to harsher treatment.

It all makes sense. You understand, don't you: she avoided losses of $45,673.

You have to draw the line somewhere!

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