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Martha Stewart Case Study

Martha Stewart Case Study

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Published by moudi988
this is a case study analysis of the martha stewart case on whether her scandal was free trading of insider trading.
this is a case study analysis of the martha stewart case on whether her scandal was free trading of insider trading.

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Published by: moudi988 on Jan 29, 2010
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05/26/2013

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Business Ethics CourseFall 2009/ 2010Instructor: Dr. Saud KatebAssignment: Martha Stewart:Free Trading or Insider Trading?Students:Doaa Ba’amer ID#: 0510296Doaa Baothman ID#: 0610083Moudi Al-Ghashyan ID#: 0610125Roaa Jamjoom ID#: 0810392Introduction:
 
Fraud, lying, conspiracy...not terms that any individual generally wantsassociated with their history, nonetheless with their reputation andpersonality; especially if that individual happens to be Martha Stewart.Martha Stewart: a name which almost every person who calls themselves anAmerican can recognize. Her name pronounces itself across cookbooks,magazines and even has its own show on Style and The Learning Channel. Itnow pronounces itself with yet another captivating theme, as part of one of America's major scandals. The high profile nature of the Martha Stewart insider trading case led toabundant research and writing by academic and media professionals. In thispresentation we seek to discuss the central moral and ethical issuessurrounding the case. In addition, the greater issue of insider trading will beexamined and moral foundations for the issue will be established anddiscussed. Finally, the presentation will conclude with a suggestion for themost consistent ethical approach to insider trading.
Background:
Martha Stewart owned shares of a company Called ImClone SystemIncorporated, which was founded in 1984, it is a biopharmaceutical companycommitted to advancing oncology care by developing a portfolio of targetedbiologic treatments designed to address the medical needs of patients with avariety of cancers. In 2001 ImClone received notification that a newprescription drug, in which the company poured extensive money intoresearch and development, would not receive approval by the Food and DrugAdministration. The CEO of ImClone, Sam Waskal, in an effort to avoidfinancial losses to his shares of ImClone, made a call to his stock broker todump his shares of the company stock. The broker, who also served as abroker for Martha Stewart, notified Stewart that the CEO was liquidating the
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company stock and that it would be in her financial interest to follow suit byselling off her own shares of the company, which totaled almost 4,000shares. The Securities and Exchange Commission noticed an unusual coincidencebetween the selling of mass amounts of shares by the CEO of ImClone andMartha Stewart and began an investigation to determine if Martha Stewartwas guilty of insider trading.Insider trading is defined by the SEC as “Illegal insider trading refersgenerally to buying or selling a security, in breach of a fiduciary duty or otherrelationship of trust and confidence, while in possession of material,nonpublic information about the security. However, in an interesting legaltechnicality, Martha Stewart did not necessarily breach a fiduciary duty tothe other investors, since she had no real obligation to inform otherinvestors, which would be the case if she were an officer with the company.It is therefore possible that if Martha Stewart had initially confessed to heractivities that she might not have been convicted of insider trading.However, that is not the course that Ms. Stewart took. She instead chose tocollude with her broker in an attempt to fabricate a story about how therewas a standing order for Ms. Stewart to sell her shares if the stock price fellbelow $60 per share. This dynamic in the case represents an important ethical distinction in thedecisions made by Ms. Stewart up until this point. When Ms. Stewart initiallyreceived the information about the potential drop in the stock price of theImClone stock and subsequently asked her broker to sell her shares, it ispossible that she did not knowingly engage in illegal behavior. While theremight be discussions as to whether or not insider trading is unethical orshould be illegal, the question of whether or not it is ethical to lie to federalinvestigators is blatantly illegal and unethical. By conspiring with her brokerto defraud the Securities and Exchange Commission Ms. Stewart knowingly
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