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06-26-2002, 08:08 AM
I am talking as a poker player here without knowing all the details. But it sure seems to me from that viewpoint, that the chances she's innocent is greater than most think. My main reason is that it seems hard to believe she could be that stupid. Selling the day before the drug gets rejected? (I assume that if her broker did it on her behalf knowing everything but not telling her, she is not guilty). Common sense says that if she was told, she would have ordered her broker NOT to sell, we are talking about a pittance to her right? Compared to the incredibly obvious downside.


Besides the above, I saw her on TV yesterday and her short comment and demeanor was somebody who wasn't "bluffing" in my experience.


Perhaps the details of this case renders my above comments meaningless and her guilt is a slam dunk. If so please let me know. Because if that is not the case I'm buying her stock. And please don't reply with simplicities like "rich people are sometimes greedy" or "smart people sometimes do stupid things". All true but not enough to talk me out of a good bet. If the particulars of this case are at the moment such that her innocence is plausible, I want to bet on it. If not, please tell me now.

06-26-2002, 08:36 AM
today came out assistant broker recanted story about a standing stop loss order. doj now investigating her for obstruction of justice. gettin real interestin. they may not get her for insider tradin but may get her for the cover up.

06-26-2002, 09:28 AM
The questions I would ask are:


1) How likely is it that Martha Stewart guilty of whatever they are accusing her of doing?


2) How large of an adverse effect will her guilt have on the intrinsic value of her company?


3) What is the approximate intrinsic value of her company?


Well, I'd look at #3 first in this case. For the company to trade at over $13 a share I think the market is factoring in long term 20% growth in earnings. YMMV of course. But this already doesn't make much sense to me because although this is a plausible best case I would expect a market price to take into account a range of possible earnings growth rates.


I have no idea what a good legal opinion of Martha Stewart's situation should be, so I'm in no position to directly answer your question. But I'm suggesting that you put numerical values--your best rational estimates--on the 3 points above before making your bet.

06-26-2002, 11:08 AM
Assuming this will be settled soon, all that matters is the chance she is exonerated and how various outcomes will affect the price that day.

06-26-2002, 04:02 PM
I don't know how long it will take but the longer it takes the more the true value of the company will become a factor.


Maybe you can find a way to bet directly on her innocence without having to touch her stock?

06-26-2002, 04:49 PM
The fact is Martha Stewart makes very lovely flower arrangements that just melt my heart. Her new patio furniture series is great and so are her new Fourth of July cookie cutters. Ultimately, we must value her company based on how good her products are. And they are very good products, indeed. I am a big Martha Stewart fan and I never miss any of her shows. I owe the loveliness of my quaint country home with a pink front porch to Martha Stewart's decorating ideas. I will never sell my stocks in Martha's company. Go Martha! Go girl! We love you!

06-27-2002, 07:24 AM
It doesn't matter whether Martha is guilty or not.


If the case ever gets to a jury, she'll make the jurors a

plate of hot cross buns and skip out of the court room

faster than OJ on speed.

06-27-2002, 08:00 AM
how do you know such a bet is + ev? or better how do you determine when it is?

06-27-2002, 08:27 AM
What I am counting on to happen is that the Merril Lynch broker admits he gave her a tip without telling her why. I just bought 100 contracts (10,000 shares) of July 15 calls at 30 cents each. A $3000 flyer that makes me 25k if I get lucky.

06-27-2002, 11:43 AM
25k upside vs 3k downside.


odds your scenario unfoldin make it +ev. got it and like it!


i want to say that when dave makes a call like this its worth notin. thank you dave.

06-27-2002, 07:01 PM
How do you know it's +EV when he hasn't even mentioned the probabilities of the upside scenario occuring versus the downside scenario occuring? Don't you think you need this data, in addition to the dollar amount risk/reward ratio of 3k vs. 25k, before you can decide to agree with David that the bet he decides is ideed +EV? He only says that he's "counting on it" but does not mention the probabilities of it occuring. More like wishful thinking to me.

06-27-2002, 10:29 PM
i dont know. my post is worded poorly. i dont write so good. what i meant was that if odds of scenario unfolding is such and such its +ev. i didnt understand his logic, i do now, and was just reapetin it like some doh-doh. pay me no mind i just ramble on a lot.

06-28-2002, 07:57 AM
MSO july $10.00 calls are $1.95 on last trade. probably still worth a play. daves up over 500% already on this one. cant say he didnt try to help us. no matter what happens now you could always cash if you followed the advice.

06-28-2002, 08:52 AM
ok but no positive news for martha and the options have gone up a lot in a day or 2. more than good news possibility working in trade i guess. dave might elaborate. options could still go down but also have a lot of upside. one thing for sure they aint worth $0.30 a contract anymore. didnt know how dave was limiting downside dah options.

06-29-2002, 01:28 AM

06-30-2002, 04:42 PM
David, you allude to the fact that it could be the broker who did all the action - I'm sure you know that he has since been fired. The part that gets me is this - the wakel guy is her friend - not her brokers - as far as I know.

07-01-2002, 01:06 AM
Hi David,


I read an article about martha stewart in which the author highly recommend that you do not buy her stock, and that if you own it to sell immediately. The article made it the case against her sound very convincing, I don't remember it in great detail, but I think he said that a few of her friends (possibly her daughters) sold the stock as well right around that same time, and that martha's story was incongruent with the time of her phone call that she made to the Imclone company. I tried to find the article on fidelty's site but it had already been taking down by now.


Best of luck,


Shawn Keller

07-01-2002, 10:03 AM
What's That on Your Sleeve, Martha?

07:40 a.m. 06/26/2002 By Robert Hunter Provided by


DON'T CALL ME a Martha basher. In these very pixels 16 months ago, I threw some support behind the stock of her company, Martha Stewart Omnimedia (MSO). I liked the mini media empire's diversified revenue stream, and the publishing division's strength during the great millennial advertising slump. And I presented Ms. Stewart as an alpha female of grand historical significance, a woman not afraid to smack around an underling or a business partner or a random passerby in a wheelchair to get what she wants. (Metaphorically speaking, of course.)


But this is how I ended that tasty little morsel of financial journalism: "Be warned, however: Things could unravel in a hurry if Martha starts buying products from Guatemalan sweat shops or tries to clone herself or something. One major PR fiasco can weigh on a personality-driven stock like a botched Yorkshire pudding."


If you threw caution to the wind and gobbled up some shares, you didn't do too badly, at least for a while. By early this month, the stock was down just a few pennies, whereas the Standard & Poor's 500 had shed 17%. And MSO's publishing division its biggest moneymaker looked more promising than ever as the ad market showed signs of slowly regaining its footing.


Then, on June 6, Martha's Yorkshire pudding turned to lead. If you're one of the shareholders who has held on in hopes that Martha will emerge unscathed from this insider-trading mess, let me be clear: It's time to sell. Right now.


The evidence against Stewart seems disturbing. For those of you who haven't been keeping up, here's a quick recap. Last December 26, former ImClone (IMCL) CEO Sam Waksal was informed that the Food and Drug Administration would be rejecting its application for cancer drug Erbitux, the crown jewel in the biotech company's pipeline. Waksal, a New York socialite with well-documented ties to Stewart and her daughter, allegedly tipped off his two daughters and his father about the imminent ruling and tried to dump shares himself before the official announcement after the market closed on Dec. 28. (Waksal's daughters and father successfully sold millions of dollars worth of ImClone shares.) FBI agents arrested Waksal on June 12 on charges of insider trading. The SEC is also investigating ImClone, and Waksal invoked his Fifth Amendment right against self-incrimination in testimony before the House Energy and Commerce Subcommittee on June 13.


Stewart sold 3,928 shares her entire ImClone stake on Dec. 27, a day before the official announcement. Why the sudden move? Her official story has been that she had prearranged a stop-loss order, whereby her Merrill Lynch (MER) broker would sell when the stock fell below $60. That price was indeed reached on Dec. 27. But phone records seem to indicate that Martha also placed a call to Waksal on Dec. 27. Her defense: Only after she sold her shares did she call Waksal to see how the company was doing. (Martha Stewart Omnimedia's media relations department didn't return a phone call seeking comment.)


The explanation is a little hard to fathom. Why on earth would she phone Waksal after making the trade? And there are other bits of circumstantial evidence that seem to contradict Stewart's account. First, Stewart's stockbroker was a man named Peter Bacanovic, another Manhattan socialite who also happened to be the broker for Sam Waksal and his daughters and who used to work at, of all places, ImClone. Second, Bacanovic's assistant at Merrill Lynch, Douglas Faneuil, has disputed the stop-loss-order story. According to reports in the Wall Street Journal, Merrill has put Bacanovic and Faneuil on paid administrative leave because of "factual issues regarding a client transaction." Faneuil has reportedly admitted that he misled Merrill Lynch lawyers early on when he backed up Bacanovic's story.


Third, and perhaps most incriminating, a friend of Stewart's also sold 10,000 shares of ImClone just before the FDA officially rejected the Erbitux application. Investigators are looking into a Dec. 28 sale by Bart Pasternak, a surgeon in Westport, Conn., whose ex-wife shared a ride to Mexico with Stewart on her private jet the day before. Hmm.


And as if things weren't bad enough, the Journal reported Wednesday that prosecutors have added obstruction of justice and making false statements to their list of possible charges against Stewart.


Add it all up, and it looks awfully bad for Martha. But whether or not Congress, the Justice Department or the SEC ultimately deems her guilty of an illegal act, the negative publicity is potentially devastating for Martha Stewart Omnimedia. Now, at a publishing industry conference on June 19, company officials said they haven't seen any ImClone-related weakening in any of their businesses. They said second-quarter earnings would come in at 15 cents per share, one penny more than expected, and that ad pages for the July issue of Martha Stewart Living magazine jumped 25% year-over-year. How ducky.


At some point soon, though, the negative publicity will start to weigh on Martha's results. The media scrutiny will only intensify until the matter is resolved legally. We will endure more spectacles like the one on Tuesday, when Martha dodged the questions of CBS Morning Show host Jane Clayson while chopping cabbage and proclaiming "I will be exonerated of any ridiculousness." Television journalists will clamor for a long sit-down interview with Martha, offering her the opportunity to clear the air. Martha's fans will draw their own conclusions, and at least some will assume she's guilty, let their magazine subscriptions lapse and watch Emeril instead. Advertisers will get cold feet. Profits will suffer.


Consider the case of Rosie O'Donnell. According to the New York Post, newsstand sales of the magazine Rosie "fell off the table" in May, the issue in which O'Donnell confirmed that she's gay. Last time I checked, being gay wasn't a crime. Insider trading, of course, is a crime. Bottom line: Allegations that Stewart a director at the New York Stock Exchange, for God's sake has run afoul of the nation's securities laws simply cannot be good for business. And while it's highly unlikely that Martha will actually serve time in prison, any result other than complete exoneration could sink the company.


Already, Martha seems tainted even among lowly politicians. The Democratic Senatorial Campaign Committee postponed a $200,000 fund-raising event on Monday that Stewart was supposed to host, with a guest list that included Tom Daschle of South Dakota and futures trader extraordinaire Hillary Rodham Clinton of New York. When the alleged queen of insider trading disses you, you know you're in deep trouble.


And let's not forget that investors haven't taken kindly to corporate high jinks lately. The economy has stabilized, inflation is in hibernation and corporate profits are improving yet stocks are mired near four-year lows. WorldCom (WCOM) is merely the accounting debacle du jour. On Tuesday, it was revealed that the company overstated its cash flow by, oh, $3.8 billion or so in the last five quarters. Remember: Not one company tainted by scandal since the fall of Enron (ENRNQ) has seen its stock bounce back to previous levels. Not one. When there's been smoke this year, there's been plenty of fire.


What's happening to Martha Stewart Living Omnimedia now is precisely the doomsday scenario I warned of last year. Things are unraveling. Martha's stock has fallen more than 30% since June 6. It's time to get out while you still can.