I wonder what Martha Stuart was thinking this week when the $50 billion Ponzi scheme of former Nasdaq chairman Bernard Madoff came undone. (www.time.com/time/business/article/0,8599,1866680,00.html)
The SEC was intent on making an example of Martha Stewart when they sentenced her in 2004 for alleged “insider trading.” This, in hindsight, would have been three years after the suspicious investments of Mr. Madoff were originally investigated by that same SEC. I picture a harried investigator at the SEC getting a call from his boss to drop everything and get on this Martha Stewart case! “But I’m in the middle of an investigation of Madoff,” the harried worker protests. “He’s posted a suspiciously consistent profit of one or two percent almost every month for the past three years. We’re talking billions here!”
This would be, of course, the same SEC who failed to detect anything amiss at Bear Sterns, Lehman Brothers, etc, etc. But they got Martha Stewart. What amount of money were we talking about back there in the idyllic financial days of 2004? Oh yeah, it was 4,000 shares at $60 a share. Wow. Almost a quarter of a million dollars. That’s right Two hundred and fifty thousand big ones! Today the market doesn’t even react if a company announces a twenty million dollar loss. Any loss that starts with an “M” instead of a “B” doesn’t even register.
I don’t really want to kick a man when he’s down. The SEC isn’t the only culprit here. Moody’s Investors Service, who were ostensibly paid to rate investors for the public good had Countrywide Securities highly rated six months before their irregularities started coming to light. They also missed the Enron debacle until it was too late. An article in The New York Times raises relevant questions about the people who are supposed to be watching the shop. (www.nytimes.com/2008/12/07/business/07rating.html?_r=1&scp=2&sq=Moody's&st=cse) They quote an anonymous Moody’s managing director in September, 2007: “These errors make us look either incompetent at credit analysis or like we sold our soul to the devil for revenue, or a little bit of both.” He left out the words “criminally negligent”. The Times article paints a picture that Moody’s is involved in, at best what could be called a “conflict of interest.” The SEC is right there along side of them. But at least the SEC nailed that threat to society – the heartless arch-criminal, Martha Stewart.
By Myron Gushlak
