investigation for insider trading, obstruction of justice and making false statements to officials.

GBUS 3953 – BUSINESS, SOCIETY & GOVERNMENT

ARTICLE PAPERS

Article papers will generally be three to five pages in length. You should follow the style guide requirements (posted on Blackboard), except that no title page is required. Instead, you should put your name, class, chapter, and date in the top right corner of the first page of the assignment. These items may be single-spaced.

You are to submit the paper via turnitin.com. You should title the file using this naming scheme:

GBUS 3953SP18-LastNameFirstName-Article Ch 1

So, if I were submitting an article paper regarding Chapter 1, the file name would be:

GBUS 3953SP18-PalmerSteven-Article Ch 1

Using any other naming scheme for the file may cause the file to be lost during the download process. So not using the proper naming scheme will result in you not being given credit for completing the assignment.

Over the course of the semester we will study fifteen chapters (all textbook chapters except 4, 11, 17 and 19). You need to select ten of those chapters for which you will submit an article paper. This means that over the course of the semester you should have written ten article papers regarding ten different articles and applying articles to ten different chapters.

Articles must come from a recent edition (within two weeks of assignment being due) of an acceptable source. The article must apply to the appropriate chapter. A sample of an article paper (written in 2002) follows.

These are the acceptable sources:

The Wall Street Journal USA Today The Arizona Republic

The New York Times Houston Chronicle Atlanta Journal-Constitution

Los Angeles Times Newsday Detroit Free Press

Chicago Tribune The Dallas Morning News Chicago Sun-Times

The Washington Post San Francisco Chronicle San Jose Mercury News

The Washington Times The Boston Globe New York Post

The Plain Dealer The Star Tribune The Denver Post

The paper should be organized as follows:

Article Identification (include the URL, if read electronically)

Summary of Article

Analysis of Article as Relates to Chapter

Student’s Opinion and Thoughts

Conclusion

A copy of the article should be attached to the current events paper.

Steven C. Palmer

GBUS 3953

Chapter 13

August 26, 2002

“A Friend of Martha Stewart Cooperates in Trading Probe” Wall Street Journal, August 9, 2002, p.1

(https://www.wsj.com/articles/SB1028856355556430200)

Summary

The investigation into possible criminal activity involving Martha Stewart and ImClone

Systems, Inc. stock might be bolstered by a new witness. Mariana Pasternak, a friend of Ms.

Stewart, has suggested that she can provide evidence to rebut Ms. Stewart’s account of the sale, according to sources close to the investigation. Ms. Pasternak and Ms. Stewart were on a private jet on the day Ms. Stewart made the controversial sale of the stock. Ms. Stewart is under investigation for insider trading, obstruction of justice and making false statements to officials.

If prosecuted and found guilty she could face a term of ten years in prison.

Samuel Waksal, former ImClone CEO and friend of Ms. Stewart, has been charged with securities fraud, bank fraud, perjury, and obstruction of justice. He is to be arraigned on

Monday.

According to investigators Ms. Stewart unsuccessfully attempted to contact her broker. After talking to an associate of her broker, Ms. Stewart sold her shares in ImClone. Ms. Stewart claimed that the stock was sold because of a prior stop-loss order to sell if the stock went below $60 per share. The associate involved has said that there was no stop-loss order in place at the time of the sale.

Analysis

Since the stock market crash of 1929, securities law has been an important factor in rebuilding financial markets. As explained in Chapter 13, securities law provides that a person who has inside information cannot trade in a stock based on that knowledge. Inside information is material non-public, confidential information regarding a company’s financial condition that

may influence investment decisions.

If Dr. Waksal provided Ms. Stewart advanced notice that the FDA had turned down the application for ImClone’s primary product before the announcement was made public, this would be inside information. Obviously if a company cannot sell its primary product the value of the company will be negatively affected. For Ms. Stewart to sell the stock at a much higher price before the FDA announcement was made public could be insider trading.

All citizens have the legal duty to be honest with law enforcement officials and with

Securities and Exchange Commission (“SEC”) investigators. The 5th Amendment to the U.S.

Constitution protects a citizen from having to answer questions by government officials. However, if a person provides information, that information must be truthful. Lying to law enforcement or SEC investigators is a crime.

If, as alleged, Ms. Stewart falsely told investigators that she had a prior stop-loss order that triggered the stock sale, she could be guilty of false information and obstructing the investigation. It would appear that her intent was to mislead investigators in a way that impeded the investigation.

Even if her conduct is deemed not to be illegal, ethical concerns still need to be discussed. Is it ethical for a person with non-public information as to the value of property to profit at the expense of an innocent third party? Unlike a person who does not make the effort to have the necessary information to properly value property, when inside information is involved one of the parties to the transaction is not in a position to gain the information no matter how much investigation has been done.

Ms. Stewart is CEO of a publicly-traded enterprise and a member of the New York Stock

Exchange. She should be very familiar with securities laws and the SEC rules and regulations.

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If she intentionally violated the law, she has failed in her ethical duties to the public as a member of the New York Stock Exchange.

Finally, as a citizen of the United States, is there an ethically duty to cooperate with law enforcement officials. Surely it is unethical to intentionally provide false or misleading information to a government official in that official’s exercise of his/her duties.

Opinion

There appears to be an abundance of evidence to suggest that Ms. Stewart has engaged in criminal activity. Though the investigation is still progressing into the stock sale transaction, clearly, she lied to investigators. It is important to bolster investor confidence in the stock markets to prosecute public figures, like Martha Stewart, for criminal wrongdoing regarding securities laws.

If prosecutors do not file charges against Ms. Stewart, the public will believe that there are two sets of laws, one for the rich and famous and one for the rest of us. Confidence by the small investor will be greatly diminished.

From the public information, it appears to me that Ms. Stewart is also guilty of securities fraud, insider trading. She needs to be prosecuted and sentenced to jail for her actions. Ms.

Stewart’s profits from this stock sale were relatively insignificant for her; however, for the

average investor who lost money because of this transaction the loss could be significant.

If she is not prosecuted, Ms. Stewart’s actions will only encourage others to use inside information for profit at the expense of others. It will also further erode the public confidence in economic markets. With other scandals, such as World Com and Enron, our government officials must take affirmative actions to bolster investor confidence.

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Conclusion

Martha Stewart may well be on her way to prison. If this new witness clarifies what happened on the day of the questioned sale, prosecutors may feel more confident in their case to proceed criminally against Ms. Stewart.

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