Martha Stewart Scandal

...

Effects

The effects that have happened to Martha's company and her many partnerships is that they have lost a lot of money. She has lost lots of money and business because customers don't trust her any more, so are not investing and/orpurchasing her products. Martha has been “out of business” for 5 years and has not been making as much profitandthe ratings of her tv appearances have been decreasing. Martha has also been having many problems throughout the past couple of years which means she haslostloadsof money. AlsoMartha had to pay a $30,000 fine which probably came out of her own pocket. The stockholders have been affected because the stock value decreased significantly afterthe rejectionfrom the FDA; many of the stockholders lost a great amount of money. Since they did not have access to confidential information, they were not able to save theirinvestments. The effect on the people that Martha is indebted to is that they may not be getting their money back for a long time. When Martha gets out of jail, her first priority is to get her business back and running. She probably willnot be payingoffherAccounts Payables ina while, untilshe gets more profit. The effect that her customers may have is that they may not be able to trust Martha anymore because of the scandal. As a result of that,thecustomers maynotbe purchasing products from her. Another effect on the customers is that Martha may be making less quality products because she doesn't have much money to make good quality products. Her products may become cheaperandthe quality of the productsmay decrease; they may be making products of lesser quality and price just to make more of a profit. Therefore customers can be ripped off from Stewart’s company. The effect on Martha is that people don't trust and want to get involvedwithsomeone whohada recordof insider trading and fraud. She might not get as many job opportunities because people don'twant to work with her. She will not be gaining as much profit as she used to get and has lost a good margin of her money because of the scandal.

Recommendations:

The recommendationsthat iwouldadvise bothcompanies todotoin ordertoavoidsimilar scandals is by using segregation of duties. Segregations of duties is separating employees

3

---------------------------------------------------------------

[pic 5]

---------------------------------------------------------------

so that their duties do not intermingle. Also, there should be strong documentation procedures. Having twopeopletolook overdocuments is a goodidea sothatscams suchas transferring $4.9 million in stock to another account(which in this situation was to Waksal’s daughters) would not be allowed to happen. Peter should nothave been the only one transfering the money over, there should have been a second person working and watching what is being ​put in and taken out of the company and making sure nothing is taken out that is not supposed to be taken. Another recommendation is to use documentation procedures which is having evidence of the transaction that has occurred. Having passwords and signatures will allow for evidence forwhodidthe transaction. Also, only allowing certain people access certain documents and resources offers great protection for the company because then other certain workers cannot get into the documents. In this situation, it would have showed who did the transaction of the money and would immediately show who was guilty. Maybe some otherworkers were involvedin the scandal but noone willknowbecause itcouldhave beenanyone whosignedin. Having a password or signature can show the manager if there was something stolen and who it was. Another recommendation is to have physical control such as safes, alarm systems, cameras, fingerprint scanners etc. This will allow for clear evidence for who was involved in the robbery. Also, it ensures that only certain people can have access to certain documents or even merchandise because merchandise (or inventory) can get stolen very easily. In this scandal there could have been cameras to show video/audio records ofwho was making the transaction atthatspecifictime. Anotherrecommendationis toimplement human resource controls, which is rotating employees’ duties around. Putting different employees at different jobs ensures that they do not get familiar with one duty. In this situation, Peter probably knew how to get around the situation and how to avoid getting caught transferring the money over; however he did not cover his tracks very well.

Where are they Now?

Martha Stewart is coming back into the business world from her time in prison. Her business and company, Martha Stewart LivingOmnimedia inc., is back andpartneringwith different organizations. She is partneringupwithseveraldifferent coporationsuchas “E. & J. Gallo (Martha Stewart Vintage wines), KB Home (Martha-branded Homes), and Macy’s (Martha kitchen, dining, andbeddingcollections). Martha is tryingtoget hernameback out into the business world. Despite the arrest, Stewart still feels as if her name is still well known in the business world. Martha is also involved in hosting two shows named "The Apprentice: Martha Stewart” and “The Martha Stewart Show". Even though Martha’s business is coming back, it does not meanthattheirfinancialpositionwillreturntowhat it was before the insider trading incident. Martha lost over $26 million from the period of 2008-2010. The rating Martha Stewart’s shows fell 70 percent and her company was also named the worst brand equity. Even though Martha is accepted back into the business

4

---------------------------------------------------------------

[pic 6]

---------------------------------------------------------------

world, she is not gaining a lot of profit. She has to redeem herself. She says that her name (Martha Stewart) is what helps her make money but there was an investigation on Martha's brand quality and people say that she needs to take a step back and not use her name for everything. She needs to think more about the quality of the business more than allowing her name run the business. Sam Waksal and Peter Bacanovic were also key players in the scandal. Sam Waksal was the CEO of ImClone and Peter Bacanovic was her broker. After the scandal happened Sam was charged with “insider trading, obstruction of justice, and bank fraud.”