REVIEW & OUTLOOK
The Trials of Martha
Prosecutions aren't the place to write securities law.
Two weeks into the Martha Stewart trial, the tabloids have had a field day feasting on celebrity sightings, the boots Martha wears to court, her preferred brand of bottled water--even her distaste for the music she had to listen to when the folks at Merrill put her on hold.
If only some of the media glare could be re-directed toward the innocent bystanders paying the biggest price for the prosecutors' zeal to see Martha Stewart in an orange jumpsuit: the other shareholders of Martha Stewart Living Omnimedia.
From the day the indictment was handed up, we've thought there was something strange about prosecuting someone for obstructing justice over a crime that the government doesn't claim happened. With every day of this trial, our doubts have only grown.
Already the government's star witness, Doug Faneuil, has admitted that Miss Stewart never asked him to lie or do anything illegal. We know too that the original premise of the investigation turned out not to be true: that ImClone CEO Sam Waksal had tipped her off about an imminent and damaging FDA report about its wonder drug Erbitux. And even in one of the most damning allegations against her--that she altered a phone message from her broker about her shares in ImClone--her assistant testified that Miss Stewart immediately thought better of it and ordered her to restore the message back to the original.
In other words, this is looking more and more like a case that should never have been brought. Most troubling is the accusation of securities fraud, if only because the penalties here are the most severe. The heart of the prosecution charge is that in declaring her innocence (and specifically by offering her own version of events), Miss Stewart's intent was to "defraud and deceive" her own shareholders by "preventing a decline in the market price" of Martha Stewart Living Omnimedia.
Miss Stewart lost in court when she protested that this charge raised First Amendment concerns back in the fall. But even U.S. District Court Judge Miriam Goldman Cedarbaum, who allowed the charge to proceed, conceded that it was a "novel application of the securities laws."
Notwithstanding Judge Cedarbaum, we believe Americans ought to worry about "novel applications" of securities law. That should be especially true in a case such as Miss Stewart's, where it represents the most serious charge against her. And in an environment in which prosecutors bet that most accused CEOs will prefer a quiet settlement to a messy public fight, we ought to be careful about putting Americans in a position where a charge itself makes them afraid to defend themselves or their institutions. Even the rich and famous.
That's still a good question. When the Journal first reported her ImClone trade back in June 2002, Martha Stewart Living Omnimedia was selling at about $19. Last we looked, her company shares were trading just under $12. If the fraud charge really is about protecting these shareholders, would anyone in the Manhattan U.S. Attorney's office care to estimate the price of its prosecution?
