Corporate Fraud-In Praise of Jail Time

Scott Pearson

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Finally, we are beginning to see real serious consequences for some of the players in the frauds that have been so prominent in the recent news. A third Enron executive is now sitting in a jail cell, and one WorldCom top dog has been arrested. Even Martha Stewart has finally been indicted.

It’s about time!

Too many have turned a blind eye to these cases. I would argue that this callous disregard has serious implications for free markets worldwide. America is the image of how a free-market works, and the world is watching.

In nations where fraud and corruption are tolerated, free markets don’t last long. Already, many former communist nations are on the road back toward socialism, because brief attempts at developing a functional market-based system failed. These failures usually were the result of weak legal structures and the domination of a class of mafia businessmen who defrauded citizens without penalty. Such a system is doomed. Any nation that tolerates fraud and corruption is doomed to see its market system fail.

The strange thing is that very few in the pro business camp have taken the trouble to cry out for harsh penalties. Do we not understand how important fairness and justice is to freedom, and how important all of these are to economic progress? Anyone who values the free-market and the opportunity to engage in honest business activity should be thrilled to see the indictments coming.

Instead, we’ve dragged our feet in convicting these celebrities. The case of Martha Stewart is particularly disturbing. Regardless of what one thinks of her home-tips, her crimes are fairly obvious. Yet, many in the press and in mainstream America prefer to defend her, and believe her “innocent act”. The government’s attempt to criminalize these actions make no sense to me, ” Martha claims. Yet, there is little doubt that Martha, a former stockbroker, is well aware of the rules regarding insider trading. Whether one agrees with the specific rules or not is irrelevant, because investors invest with the expectation that these rules will not be violated. Still, not only did she violate the law once with regard to ImClone, her friend’s company, but more disturbingly, when news that she would be indicted was about to hit the press, she violated the same laws again, by selling shares in her own company before the public knew about the indictment (which would obviously cause those shares to fall).

Such egregious disregard for the law deserves no mercy. Let Martha decorate her prison cell. Hopefully, she’ll soon have a lot of company there.

To reach Scott Pearson for comments or to learn more about his Investment Advisor services, visit

Scott Pearson is an investment advisor, writer, editor, instructor, and business leader. As President and Chief Investment Officer of Value View Financial Corp. , he offers investment management services to a wide variety of clients. His own newsletter, Investor's Value View, is distributed worldwide and provides general money tips and investment advice to readers both internationally, and in the U. S.


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