Martha May Have Jaywalked, but Kenny Boy Did Worse
By Allan Sloan
Tuesday, July 20, 2004; Page E03
The names are linked: Martha Stewart with Kenneth Lay. Martha with Kenny Boy. The "domestic diva" (whatever that means) with the former chief executive of Enron. Stewart's sentencing last week got even bigger play than the previous week's indictment of Lay, who presided over Enron when its collapse in 2001 touched off our ongoing corporate scandalfest.
But despite surface similarities -- both have fallen from a high place, both once relished publicity and clout, both have refused to say they're sorry for what they did -- their offenses aren't even remotely comparable.
Treating Stewart and Lay as equivalents is like equating jaywalking with vehicular homicide. Both take place on streets -- but that's about the only thing the offenses have in common.
The jaywalker, of course, is Stewart. As you doubtless know, Stewart was convicted of lying to the government to cover up the sale of 3,928 shares of ImClone shortly before bad news about the company became public. Her offense doesn't involve her duties at her company, Martha Stewart Living Omnimedia.
Lying to the government about a stock sale is not a good thing, as Stewart would say. Among other things, it's plain stupid. Nothing sends regulators and prosecutors up the wall like being lied to.
But when it comes to doing damage, Stewart's offenses are barely a rounding error compared with Lay's. Stewart was convicted of trying to cover up something that wasn't a crime: a call from her stockbroker's assistant, who says he told her that ImClone's chief executive was trying to sell his stock. Because ImClone was awaiting a crucial regulatory decision, knowing that Waksal was trying to sell heavily made it obvious that it was time to bail out before the stock collapsed. Which it did several days later, when news of the regulatory turndown was disclosed publicly.
Forgive me, but I have trouble getting excited over this offense. Obviously, Stewart got the call because she was an important customer. And she was greedy. But she doesn't appear to have broken any laws by selling, and she had no legal or moral obligation to the shareholders of ImClone.
That's why, unlike most of the rest of the news media, I don't feel a bit of schadenfreude -- the joy in the misfortune of others -- that so pervades the Stewart story. I never swooned over her, so I've got no reason to spit on her.
What Stewart did was offensive -- but what Lay did was odious. He presided over the growth of Enron, which seems to have been a dishonest enterprise almost from the start of its rise to prominence, and was in charge when Enron collapsed. This collapse hurt thousands of Enron employees and tens of thousands of shareholders, and cost creditors billions of dollars.
Lay now has the nerve to use the "I knew nothing" defense. I mean, come on. If you knock down a total of $325 million in five years, as Lay did, you damn sure should have some idea of what's happening.
So at the very least, Lay violated his fiduciary duty to Enron's shareholders and creditors -- his obligation to look after their interests, and place them ahead of his own -- by not doing his job properly. The government charges that he was actively involved in a deception campaign by Enron in 2001 to hide its true state of affairs. We'll see when the trial comes.
And -- in an offense that truly enrages me, regardless of whether it's illegal -- Lay actively misled Enron's employees in September of 2001 by telling them that he thought Enron's stock was an incredible bargain and that he'd been buying it in recent months. But he didn't mention that he was selling heavily -- $24 million of sales in the two months before the meeting, compared with only $4 million of purchases.
Because Lay was selling his stock to Enron itself -- transactions that drained the company of $70 million in 2001, money it could have used to pay its creditors or employees -- he didn't have to disclose the sales until early 2002. And he didn't. His other sales and purchases were disclosed within the required 10 days.
Martha's got the big name and has gotten the big coverage. But she didn't inflict the big hurts on people. Those came from the likes of Ken Lay, WorldCom's Bernie Ebbers, Tyco's Dennis Kozlowski, Adelphia's Rigases and assorted other bad actors who ran their own companies into the ground. Please keep this distinction in mind the next time you're tempted to mention Martha and Kenny Boy in the same sentence. And remember that it's a lot more important to take drunk drivers off the street than to lock up jaywalkers.
Sloan is Newsweek's Wall Street editor. His e-mail address is firstname.lastname@example.org.
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