By DAVID MOON, Moon Capital Management
Exactly 30 years after Gordon Liddy's "plumbers" broke into the Democratic
National Committee headquarters in the Watergate Hotel, Washington sets its
sights on another potential bombshell investigation.
Congress wants to interview Martha Stewart in connection with an insider
Ms. Stewart, a former stockbroker, gave up prospectii and cold calls in favor
of becoming America's diva of domesticity; she made a fortune being able to make
a wedding dress and church decorations out of a 6 inch piece of PVC pipe.
Her empire includes three magazines, a cable television show, home products and
a mail order business. (No word yet on a possible 'prison
Along the way from Wall Street to Main Street and back to Wall Street (she
took her company public in 1999), Ms. Stewart met all sorts of neat
people. One was Dr. Samuel D. Waksal, the recently resigned founder and
CEO of ImClone. It seems that various members of Dr. Waksal 's family sold
shares of the company's stock just before announcing that ImClone's promising
new cancer drug, Erbitux, had been rejected. When the company announced
the news on December 28, 2001, the stock dropped 75 percent. It is
generally not a good thing to tell your friends and family bad news (or good
news, for that matter) about your public company before telling the rest of the
shareholders. Dr. Waksal was arrested for insider trading on June 12 and
is still sitting in jail.
In addition to Waksal's family, however, his good friend Ms. Stewart also
sold her 3,928 shares, just one day before the public announcement. (Dr.
Waksal knew of the FDA's likely decision several weeks earlier.) Ms.
Stewart explains that more than a month before her stock sale, she had given her
broker instructions to sell the shares if they dropped below a certain
price. The broker contradicts Ms. Stewart's recollection, remembering the
instructions as much later - perhaps after Dr. Waksal learned of the impending
bad news from the FDA.
For Ms. Stewart, the wind does, indeed, blow hardest at the top of the
flagpole. Why in the world would the House Energy and Commerce Committee
question Martha Stewart about her stock transactions? Simple: the
publicity. Requiring the high-profile Stewart to testify would generate
significant television coverage for the House members, who would then use the
opportunity to grandstand against the evils of corrupt businessmen. The
networks would lead with the story.
Did Ms. Stewart do something wrong? I have no idea. (Ms. Stewart
did sell some of her ImClone holdings a year ago, well before the FDA
ruling. She denies all wrongdoing.) But it doesn't smell too rosy
for the flower goddess. But so what? We have laws and plenty of
other agencies that clearly have responsibility and jurisdiction. If Ms.
Stewart (or any other shareholders, for that matter) broke the law, send them to
jail. But holding hearings on Martha Stewart's 3,928 shares of ImClone
seems a bit trivial for the people's legislative branch of the world's only
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).