Martha convicted; Other corporate scandal suspects wet pants


LAST FRIDAY, A MANHATTAN jury found Martha Stewart guilty on all counts: two of making false statements, one of conspiracy, and one of obstruction of justice. She faces a maximum of twenty years in prison, although, under the federal sentencing guidelines, she stands to serve around 16 months, possibly in a halfway house or under house arrest.

One can only imagine the reactions of Bernie Ebbers (former CEO of WorldCom), Jeff Skilling (former CEO of Enron), and John Rigas (founder of Adelphia), all of whom have been indicted on charges relating to corporate scandals at their respective companies. The cases against these former executives are much stronger than the case against Ms. Stewart. Moreover, the damage that occurred under their respective watches is measured in the tens of billions not the tens of thousands.

Consider that if you had bought $1,000 of the very ImClone shares that Martha dumped, you would still have $818 today. If you had purchased $1,000 of the shares sold by these gentlemen as they cashed out, you would have absolutely nothing left. You could have beaten that return by about $60 if you instead bought $1,000 worth of Budweiser (the beer, not the stock), drank all the beer, and then turned the cans in for the deposit. With the current climate, jurors may hang three men whose corrupt stewardship made a drink-heavily-and-recycle investment strategy superior in hindsight.

Moving past this superficial shareholder level examination, it becomes clear that the nature of their acts is far worse as well. Among other things, Rigas built a private golf course for himself with stolen corporate funds. Skilling oversaw the critical years of Enron’s transition from an energy company to a mass producer of bullshit financial statements. And Bernie Ebbers, the real gem in the lot, constructed an elaborate ruse that operated under the moniker WorldCom. Worst of all, WorldCom’s fraudulent financial reports caused hundreds of billions of dollars in overinvestment in the telecommunications sector as competitors like AT&T and Sprint tried desperately to copy the business model of the phantom profit-generating juggernaut.

The whole cadre of corporate scandal suspects took an enormous gamble by waiting to hear the Martha Stewart verdict. They lost. And now, their bargaining positions are weak, leaving them little leverage to cut advantageous deals with prosecutors. One cannot feel much sympathy for these pirates, who collectively annihilated hundreds of billions of dollars of capital, wiped out entire pension funds, and upset the legitimate expectations of hundreds of thousands of employees and their families.

The prosecution of Martha Stewart still seems quite wrong to me as I am opposed to a system that criminalizes tangential infractions that occur during the investigation of a real crime when proving that real crime beyond a reasonable doubt is too difficult. Nevertheless, substantial good will have come from the whole affair if the real corporate criminals end up with punishments that better fit the enormity of their crimes. In my mind, if an 18 year-old can go to prison for the remainder of his or her waking days on account of some ill-considered adolescent decisions then powerful, seasoned executives that decide to play the part of criminal mastermind while wearing a $10,000 suit deserve to share their fate.

Fred Pollock‘s column appears weekly.

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