Ethics and Martha Stewart’s Indictment

There has been much media coverage of the circumstances surrounding the indictment of Martha Stewart on charges of securities fraud and obstruction of justice as well as her subsequent conviction and prison term. When one considers her position as the CEO of a multi-million dollar corporation, her actions in relation to the criminal case have numerous ethical implications in the business world. This paper analyzes those actions in order to answer the question: Did Ms. Stewart handle the indictment responsibly?

When considering this case, there are really two distinct parts to the ethical considerations surrounding it. The first part consists of those actions relating to her sale of about 4000 shares in ImClone Systems the day prior to the stock experiencing a significant decline. Ms. Stewart was informed by her broker the day prior that the owner of the company was trying to sell off his own shares. The day after she sold, the Food and Drug Administration (FDA) refused to approve ImClone's new cancer drug and the company's stock plummeted (Associated Press 2006). Had Stewart waited to sell, she could have potentially lost over $50,000 had she waited to sell.

The ethical implications here involve the concept of insider trading. If one considers this from a purely utilitarian point of view, her actions make sense and seem justified. She was informed that a company she had a stake in was about to lose value so she sold it before it did. If you have a piece of information concerning a certain investment that you own, who wouldn't act on it? No one might be hurt from this action and it of course saved her a great deal of money. From a utilitarian perspective, this really is the same thing as someone telling you something bad is going to happen and then actions are taken to prevent it or at least mitigate its adverse effects. From this standpoint alone, the legality of insider trading seems questionable. As Macham quoted from the Wall Street Journal in an editorial, "Presumably a scrap of paper could blow into your pocket and if it contained material nonpublic information, you could be charged with insider trading for acting on it" (2004, para. 6). The more important consideration in this argument, however, deals with the deontological aspects. Most importantly, the contractual rights of those engaging in securities trading apply in this case. Insider trading is specifically prohibited by both by the Securities and Exchange Commission (SEC) and the New