When I saw Martha Stewart’s picture on the front page of my local newspaper last Thursday, I didn’t conclude “Martha Stewart: powerful celeb and corporate shark, as guilty as her cakes are glazed.” I thought, “Martha Stewart: housewife made good, heroine of Kmart shoppers everywhere, perfect example of Washington piling on the little guy, while the well-connected big guy gets off with nary a scratch.”
Consider that Stewart is accused of pocketing $45,673 in insider-trading profits — small change compared with the up to $11 billion in illegally inflated earnings that telecom giant WorldCom hoodwinked its investors into believing it had. Then consider the contrasting outcomes: Stewart is charged, resigns under pressure from the helm of the firm she built and gets a televised perp walk in front of a federal courthouse. WorldCom is sued, execs come to Washington to smooth feathers with the boys at the Securities and Exchange Commission and the regulators reduce WorldCom’s penalties of $1.5 billion to a wrist slap of $500 million.
There’s more: Stewart is accused of misdeeds as a private investor, not as a business leader. As such, she fits perfectly among the pizzeria owners, temp workers and other such regular folks the SEC has targeted for insider trading. With few exceptions, the insider-trading enforcement docket remains dominated by small-time investors and small-time sums.
Hand in glove
Washington’s kid-glove treatment of bigwigs is more than well known by the bigwigs themselves. That goes a long way to explaining why after WorldCom snookered investors it didn’t stop at massaging the issue with the SEC. The honchos also told the IRS that because they’d paid taxes on the earnings they faked, they should get the money back. The IRS promptly forked over $300 million. In addition, two government agencies gave WorldCom, now operating as MCI, big new contracts. And the emboldened firm has returned to the IRS for more tax savings, this time worth $2.5 billion.
Washington is rewarding one of the nation’s worst corporate citizens with tax and regulatory leniency, plus government contracts — all when plenty of law-abiding corporate citizens are barely surviving. When the big boys play their cards right, it seems, not even a fraud record disqualifies them from winning a round and sending taxpayers the bill.
WorldCom’s windfall is bound to make other company execs pack their bags for Washington. Already, the airlines want a taxpayer bailout of $13 billion, arguing the Iraq war hurt their revenues. They’re asking despite the fact that they were granted a multibillion-dollar bailout after 9/11 and that passenger revenues didn’t drop off as severely as they had predicted. Bankrupt Enron has asked the IRS for a WorldCom-style tax rebate as well.
Whether the company is WorldCom, Enron, the airlines in 2003 or Chrysler back in 1979, a trip to Washington to seek leniency spells bad news. Inevitably, such companies have far deeper problems than a taxpayer bailout can solve.
There are certainly signs that some politicians are catching on: Sen. Rick Santorum, R-Pa., is taking aim at a loophole that allows WorldCom, or MCI, to get sweet deals from the IRS. The White House reportedly doesn’t plan to bail out the airlines further. And this year, the SEC actually initiated three cases that involve not only major executives, but major insider trading — in the $500,000 range rather than the $50,000 range. (One case involves Enron executives; another involves Stewart’s alleged tipster, Samuel Waksal.)
That’s a start, though it will take awhile to determine whether Washington follows through on resisting the boardroom charm offensive. Sen. Susan Collins, R-Maine, chair of the Governmental Affairs Committee, plans to help. She’s examining whether WorldCom should be allowed to compete for federal contracts while under investigation for fraud.
If these politicians succeed, taxpayers can cheer. But if the nation’s capital fails to show ill-behaved companies the door, it will have to be said that not even Martha Stewart can plump a love seat comfier than the one shared by well-connected businessmen and their forgiving pals in Washington.