Rarely before has a successful businesswoman, or businessman for that matter, with an upstanding reputation been subject to a thrashing like the one Martha Stewart has been receiving in the media. Ever since suggestions surfaced that Ms. Stewart may have engaged in insider trading in shares of ImClone, the editors and owners of the New York Post , the Daily News and now The New York Times , with its Sunday front page, have been having a Schadenfreude field day at her expense. There is something troubling about this cultural witch hunt, the purpose of which seems to be to burn this diva of domesticity at the stake and worry about the facts later.
About those facts: Yes, Ms. Stewart sold almost 4,000 shares of ImClone on Dec. 27, the day before the Food and Drug Administration rejected ImClone’s application for a cancer drug. Yes, the biotechnology company’s chief executive officer and controlling shareholder was Samuel Waksal, a close friend of Ms. Stewart’s, who himself was arrested this month on insider-trading charges. And yes, it does look bad for anyone connected to Mr. Waksal, whose family also sold ImClone stock during this period. But it is grossly unfair to put Ms. Stewart in the same category with sleazebags like Boesky, Milken and now Winnick and Waksal. Whether Ms. Stewart is or is not guilty of insider trading, she has been robbed of the benefit of the doubt and convicted in the press before she has had a chance to defend herself.
Section 10b-5 of the Securities and Exchange Act of 1934 states that insider trading is a felony for which you can go to jail-but only if you are found to be guilty beyond a reasonable doubt . In a civil suit, the bar is lower: A finding of liability requires merely a preponderance of evidence. From what is publicly known about Ms. Stewart’s sale of ImClone, there is significant reasonable doubt in her favor. For example, to take just one possible scenario, let’s suppose that Ms. Stewart’s broker at Merrill Lynch, Peter Bacanovic, received a call from Mr. Waksal, who told him about the F.D.A.’s imminent announcement that the drug would not be approved. And suppose that Mr. Bacanovic did not tell Ms. Stewart about the F.D.A. finding, but only that it was time to do some year-end selling for tax purposes, and that he’d recommend selling ImClone-trying to show his clients he’s just a very clever broker and very wired in. If that were the case-that neither Mr. Waksal nor another insider nor her broker tipped Ms. Stewart off about the F.D.A. ruling-she’s in the clear, and there would be a very strong case for her innocence.
And while it now appears that there was no logged stop-loss order, frequently a client will give a broker a verbal stop-loss, which means that the broker has to keep an eye on the price of the stock, and when it falls beneath a specified price, he proceeds to sell it. Or Ms. Stewart may indeed have placed a stop-loss order and Mr. Bacanovic chose not to log it, believing he would get a better execution if he just watched the price of the stock, and if it dipped below the target price, he would sell. In any case, let’s remember that this broker from Merrill Lynch, who has been put on administrative leave, will clearly be given immunity and then be expected to testify against his client-if for no other reason than to save his backside.
But newspapers and TV reporters are skipping over any reasonable doubt and are piling on, giving Ms. Stewart more coverage than Enron and Andersen put together. Remember Gary Winnick, the C.E.O. of Global Crossing who sat at Michael Milken’s feet for years and who sold more than a half a billion dollars of Global Crossing common stock while the company was going down the toilet-where are those indictments and collateral media coverage?
Meanwhile, Ms. Stewart’s true guilt or innocence appears to be secondary to the frenzy accompanying her every move. Congress and the Securities and Exchange Commission are looking into all of Mr. Waksal’s business dealings following his indictment, and will presumably shed further light on all the ImClone trades. If Ms. Stewart is implicated in insider trading, justice will take its course. If she is exonerated, one wonders how much ink her current accusers will spill in her favor.
America Fails Its Children
The numbers are shocking: A recent study shows that nearly 15 percent of American children live in poverty-the highest percentage in the Western world. In France, only about 3 percent of children are poor; in Sweden, just over 1 percent. The U.S. figures are a national disgrace and a sign of profound failure on the part of former President Bill Clinton and now George W. Bush to address the suffering of America’s children. Making matters worse is the current economic climate: Higher unemployment likely will lead to a higher percentage of poor children as low-wage workers lose their jobs.
Politicians like to talk about their concern for children. President Bush campaigned on the promise that he would leave no child behind, but he doesn’t seem particularly outraged by the stunning number of poor children in our midst. Our elected officials in Washington, D.C., may have made matters worse when they abolished the decades-old welfare-entitlement policy, pushing poor parents into the work force. For some, the change was a success. For others, the end of welfare as we knew it means an even grimmer existence as low-wage jobs dry up.
Other countries practice what we merely preach. If we cannot match the low child-poverty numbers of France or Sweden, surely we could do as well as Canada, where about 9 percent of children are poor, or Great Britain, just over 8 percent. Reducing child poverty ought to be Mr. Bush’s top domestic priority. We claim to be a generous nation. But our poverty-stricken children suggest that we are not nearly as generous as we could be, and stand as a rebuke to our self-satisfied status as a modern, civilized country.