Martha Stewart Imclone Scandal

What is the ethical issue implicated or raised by the event?

On December 27, 2001, Martha Stewart “sold stock in a biopharmaceutical company, ImClone System, Inc., after receiving an unlawful tip from Bacanovic, at the time a broker with Merrill Lynch, Pierce, Fenner & Smith Incorporated” (SEC, 2003). Prior to Stewart selling her stock in the company, the CEO of ImClone, Samuel Waskal and his daughter Aliza Waksal “had placed orders to sell all of the ImClone stock they held at Merrill Lynch” (SEC, 2003) because they knew the Food and Drug Administration (FDA) was not going to approve the cancer drug Erbitux. Once the Waskal’s decided to sell all of their stock, they kept that information private. However, they did discuss their decision with

the financial advisors at Merrill Lynch. Under those circumstances of the Waskal’s decision, Peter Bacanovic, a stockbroker at Merrill Lynch, took it upon himself to have the information communicated to Martha Stewart through Douglas Faneuil, Peter’s assistant.
As a result of the “unlawful tip,” The Securities and Exchange Commission (SEC) caught wind of what happened, and Martha Stewart and Peter Bacanovic were both charged with committing illegal insider trading.

FBI agents and state prosecutors investigated them as well. For this reason (illegal insider trading), Douglas Faneuil and Peter Bacanovic’s acts were seen as unethical because they failed to adhere to Merrill Lynch’s work policy, “governing the confidentiality of client transactions” (SEC, 2003). In fact, what was seen as unethical behavior for Douglas Faneuil and Peter Bacanovic was seen as illegal for Martha

Stewart.
In addition to Ms. Stewart committing illegal insider trading, it was noted that she and her stockbroker, Peter Bacanovic “lied to investigators by telling them that she and her stockbroker had previously agreed to sell the shares if their market value fell below a certain price, and altered a phone message from the broker in her assistant's computer” 'immediately following a lengthy conversation with her attorney’ (Hays 2003). Not only was Ms. Stewart’s illegal insider trading seen as unethical, her lying was seen as morally corrupt as well. James B. Comey, the United States attorney for the Southern District of New York, stated, ''This criminal case is about lying -- lying to the F.B.I., lying to the S.E.C., lying to investors'' (Hays, 2003).
How did the manager, owner, supervisor, or executive, CEO of the company respond?
After the Securities and Exchange Commission and criminal authorities found out about Martha Stewart and Peter Bacanovic’s illegal insider trading and lying, Peter Bacanovic was fired from his job at Merrill Lynch, as well as Douglas Faneuil, and Martha Stewart stepped down as chairwoman and chief executive of her company, Martha Stewart Living Omnimedia. (Hays, 2003). Following their firing and stepping down, Douglas Faneuil pled guilty “to a misdemeanor, acknowledged that he accepted financial rewards from his boss in exchange for lying about the ImClone trade” (Masters, 2004). Both Bacanovic and Stewart plead not guilty, but the jury decided otherwise and found them guilty. Martha Stewart was found guilty on four counts: two counts which included false statements, one count of conspiracy, and one count of obstruction of justice. Peter Bacanovic was found guilty on four counts as well: one count of false statements, conspiracy, perjury, and obstruction of justice.
As a result of their verdicts, Martha Stewart served five months in a Federal Prison Camp, Alderson in West Virginia, and five months on house arrest. She also received a $30,000 fine and two years of supervised release by the probation office (Masters, 2004). Peter Bacanovic received a similar sentence of five months at the Nellis Federal Prison Camp at Nellis Airforce base in Las Vegas and five months of house arrest. However, he didn’t have to pay a $30,000 fine but a $4,000 fine.
How would you as the manager, owner, supervisor, or executive, CEO respond? The same or differently?
If I were the manager, owner, supervisor, executive, or CEO I would have responded the same as Merrill Lynch, Martha Stewart Living Omnimedia, the SEC, and the United States District Court Southern District of New York.

When people engage in unethical behavior(s) they should be held accountable for their actions. Whether it is a warning, dismissal from a job, paying a fine(s), probation or even receiving jail time, those should always be the consequences. Though, in the case of Martha Stewart and Peter Bacanovic, I do not agree with their sentencing. Honestly, I think the judge was too lenient. In my opinion, five months in jail and five months on house arrest is a cake walk compared to others that have committed similar types of crimes. For example, Rajat Gupta was convicted of insider trading, one count of conspiracy to commit securities fraud, and three counts of securities fraud. Gupta was sentenced to two years in prison and one year of supervised release. However, he did have to pay a larger fine than Martha Stewart, which was a $5 million criminal fine (SEC,

2012).
Why is it that Rajat Gupta received a longer sentence than Martha Stewart and Peter Bacanovic when their prison sentences could have been longer? According to the Washington Post, “the maximum penalty for each count is five years in prison and a $250,000 fine...” (The Associated Press, 2004). Yet, Martha and Peter received the minimum. Not to mention, Rajat Gupta was tried in the same court as Martha Stewart and Peter Bacanovic, the United States District Court Southern District of New York.
Given these points, I often wonder if Martha Stewarts’ celebrity status had something to do with how lenient their sentences were. Though, I’m merely speculating and do not have factual information. All in all, justice was served. “You do the crime, you do the time.”