July 20,2006

The headline from 2004 read

NEW YORK (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.

No more.

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.

Governing 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.

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