The downfall of better-living guru Martha Stewart is neither cause for gloating nor outrage. She is the latest, but unlikely to be the last, corporate executive to face prison time for letting greed wreck a spectacular career. Unfortunately, for some, even the risk of prison doesn't seem a strong enough deterrent. Stewart's case adds to a lengthening list of top executives who couldn't lie their way out of trouble mostly of their own doing.
If federal prosecutions are the only way to make some "me-first" executives honor their obligations to others, so be it. The integrity of the stock markets depends on making sure elite investors are not given unfair protection against losses. That's more essential now that many more Americans of modest means have invested in stocks.
Stewart's sale of about 3,300 shares of ImClone stock on Dec. 27, 2001, after an insider tip from her broker saved her from about $51,000 in losses, but cost her about $250 million in lost stock value from her prosecution and conviction Friday. Her company Martha Stewart Living Omnimedia took a hit; so did her employees and her shareholders. Ironically, ImClone stock has since rebounded.
ImClone founder Samuel Waksal also tried to sell his shares in December 2001 after learning the Food and Drug Administration planned not to approve ImClone's new cancer drug. Merrill Lynch refused to broker the sale. Now Waksal is serving seven years in prison. Wall Street firms are learning they have to protect their own interests.
Stewart wasn't convicted on an insider trading charge, but for lying to federal agents. That's a crime, and another irony. Had she admitted to acting on an insider tip, she could have laid the scandal to rest.
Not so with dozens of executives at Enron, Tyco, Adelphi, WorldCom and others who have either pleaded guilty to or face trials on fraud and more serious crimes. Most indulged extravagant tastes at shareholder expense while collecting huge salaries, bonuses and stock options out of all proportion to their companies' mediocre performance. Lapdog corporate boards saw no evil, heard no evil. In Stewart's case, she is the corporate brand, and her disgrace cost shareholders dearly. Shareholder anger isn't enough. It takes prosecutions to hold "me-first" executives accountable.
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