Martha paid the price of ‘a well-timed stock sale’ and yet some two thousand companies manipulated the stock options they regularly granted to executives. The scam involved back-dating options.
The headline from 2004 read
(CNN/Money) – A jury found Martha Stewart guilty Friday on all four
counts of obstructing justice and lying to investigators about a
well-timed stock sale, and the former stockbroker turned style-setter
could face years in jail.
and, as it turned out, Martha did indeed get carted off to the clink, amid cheers from the hating those rich folks crowd and boos from those who saw her as a high-profile victim.
“The word is — beware — and don’t engage in this type of conduct because it will not be tolerated,” crowed David Kelley, U.S. attorney for the Southern District of New York, outside the courthouse.
A juror contributed, “This is a victory for the little guys. No one is above the law.”
Well, maybe and maybe not. Martha paid the price of ‘a well-timed stock sale’ and yet some two thousand companies manipulated the stock options they regularly granted to executives. The scam involved back-dating options.
An option to buy stock as of a specified date and then sell
it (or hold it) if it has moved sufficiently upward, is supposed to be
a reward for executives for performance. At least that’s the
rationale. In fact, it’s a carrot for malfeasance, a way to game the
system, a way not available to you and me as ordinary mortals.
The whole option system is flawed, when you compare it to what stock
shares are actually supposed to reflect. At one giddy and long past
time in our corporate history, shares of stock were meant to (and did)
represent the value of a company, divided by the number of shares
available for sale. Fairly straightforward. Stock prices moved slowly,
because companies move slowly in the grand scheme of things.
Companies move quickly today, their investors whipped into various degrees of enthusiasm by concepts and concepts of concepts, that have little, if anything, to do with underlying values within a company. Rumor of profitability has come to mean more in the rarified oxygen of Wall Street than actual profit.
Often, by the time actual profit compares itself to rumored profit, the
heavy-hitters are long gone, the options cashed, the guy on the street
tearing up his ticket on a losing horse and wondering what happened.
What was it my old daddy used to say? “The stock market is made up of the sheep and those who shear the sheep.”
If there is a better definition of the ‘well timed stock sale’ for which Martha Stewart went to jail than back-dated stock options,
I have yet to see it. Wouldn’t it be wonderful if you and I were able
to use hindsight to make our stock purchases? Microsoft early-on is
always the favored example, along with IBM. But take any stock, give me the opportunity to back-date it to a favorable number and I’ll do just fine, thank you.
The whole wheel upon which Wall Street turns is fairness and
equality of opportunity. Volumes of law exist to authenticate that
fairness, to underwrite that equality. Twerps like David Kelley, U.S.
attorney for the Southern District of New York, make grand and totally
unsupportable statements from various courthouse steps around the
country. At the same time, common investors are fleeced by corporate
executives gaming the rules.
Jurors actually believe they have contributed to victory for the
little guys and that no one is above the law. I’m sorry about that,
Martha. You were an entire Potemkin Village behind which hide the
masters of American corporate enterprise.
SEC Chairman, Christopher Cox, (specialist
in venture capital and corporate finance with the international law
firm of Latham & Watkins, where he was the partner in charge of the
Corporate Department in Orange County and a member of the firm’s
national management) any comment?
SEC Commissioner, Paul Atkins,
(a lawyer in New York City, focusing on a wide range of corporate
transactions for U.S. and foreign clients, including public and private
securities offerings and mergers and acquisitions) any word for we small investors?
SEC Commissioner, Roel Campos, (co-founder
of El Dorado Communications and served as an executive with the radio
broadcasting company at its headquarters in Houston) how’s your portfolio look?
SEC Commissioner, Annette Nazareth, (Managing
Director of Smith Barney from 1997 to 1998, she was deputy head of the
capital markets legal group. As a Senior Vice President and Senior
Counsel of Lehman Brothers, Ms. Nazareth was the chief legal advisor to
the fixed income division from 1994 to 1997. From 1986 to 1994, she
served as Managing Director and General Counsel of Mabon Securities
Corp) how fixed is your income?
Kathleen Casey, Commissioner, your entire career has been within government and you are probably the single exception to the statement that follows.
members of the Securities and Exchange Commission are too close to the
game and the gamers, as well as too busy shearing their own sheep to
pay all that much attention.