Martha Stewart's newly revised 'crimes'

Alan Reynolds
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Posted: Jun 06, 2003 12:00 AM

After spending a year trying to decide what Martha Stewart was guilty of, the Department of Justice finally concluded -- as U.S. Attorney James Coney proudly announced -- that "this criminal case is about lying."

That's odd. A year ago, it was about insider trading. Specifically, "sources close to a Congressional investigation" planted a story in The New York Times on June 7, 2002 strongly implying that Martha Stewart had sold 39 shares of ImClone on Dec. 27, 2001 on a tip from the company's CEO Sam Waksal. That story was not written by Jayson Blair, but it might as well have been. The congressional leak about guilt-by-association with Waksal was just a vicious political smear campaign, but it kicked the stock of Martha Stewart Living Omnimedia down from $19 to $11 in a couple of weeks.

Believe it or not, the government now charges Stewart with "securities fraud" during that same period because she supposedly tried in vain to prop up her own stock by denying that she was guilty of the crime then charged -- insider trading. Yet the government now admits she was never guilty of that crime. Instead, she supposedly "obstructed justice" (her own threatened prosecution for a nonexistent crime) and made "false and misleading statements" about her reasons for making a perfectly legal sale of ImClone shares.

Any jury of passably sane people would laugh this out of court. It was the "sources close to a congressional investigation" that defrauded MSO investors a year ago. That political persecution was aided and abetted by the tabloid press, notably The New York Times.

The SEC recycled this government trash and came up with a civil charge of sorts. Yet the SEC's complaint effectively refutes both its own charges and those of the government. The SEC says, "Stewart asked Faneuil for the current market price of ImClone shares and was given a quote of approximately $58 a share. Stewart then instructed Faneuil to sell." That is exactly why Stewart said she sold ImClone that day -- the price was falling fast. Faneuil now claims he told her that the Waksal family was selling, but not why (Waksal did not say). But the SEC refutes Faneuil's new story, too, by saying, "Stewart then immediately called Waksal (after selling her ImClone shares), and left the following message: "Martha Stewart (called). Something is going on with ImClone and she wants to know what." The fact that she had to ask that question proves Martha Stewart did not know what was going on with ImClone after talking to Faneuil and selling her shares. End of story. Case closed.

The SEC says Martha Stewart saved $45,673 by selling late on Dec. 27 rather than the Dec. 31. SEC attorney Wayne Carlin tells reporters it was "unfair" of Stewart to sell her remaining shares in ImClone so promptly (she had "unfairly" unloaded many more ImClone shares in October). But unfair is not illegal. The smart money had gotten out by Dec. 14, when ImClone was $70, and the smartest money was shorting 77 million shares by then.

It took the government a year to fabricate three new offenses, all of which amount to the same charge of giving a supposedly misleading explanation for a perfectly legal stock sale. This newly refabricated case is not about illegal lying at all: Martha Stewart has not been charged with perjury. Perjury is one of the fabled "nine counts" that is not hers, but her broker's.

In a more important sense, however, this case has always been about lying. There was congressional lying a year ago about Martha Stewart's alleged tip from Wacksal. And what little remains of that discarded case is now based entirely on the testimony of a proven liar, Douglas Faneuil. He says he was lying before (when he supported Stewart's recollection) but has converted to telling the truth now (when he supports the government's story). Yet this is a fellow who admits his past testimony has been for sale, and any gift Faneuil may have gotten from his boss was token change compared to being offered only a misdemeanor wrist slap and let off without even a dollar fine.

So what is Martha Stewart's crime? The New York Times, exemplifying its notoriously creative journalism, now editorializes that Stewart engaged in an "illegal stock trade" and " was tipped by insiders that the Food and Drug Administration was not going to approve" Erbitux. That is just more lying from the source that spread the same lie a year ago.

In reality, Stewart stands accused of saying she could not recall details of a two-minute phone conversation on Dec. 27, 2001, while the government claims to know precisely what she recalled. She also stands accused of sometimes confusing her broker with her broker's assistant. Her broker, in turn, is charged with using two different pens, quite possibly on the same day. And Martha Stewart herself stands accused of altering a computer record of a phone call, even though she immediately "directed her assistant to return the message to its original wording." Did the government ever really intend to ask a jury to send Martha Stewart to prison for such heinous "offenses against the United States"? Not likely.

Prosecutorial bullies are accustomed to trying such cases in the press and then intimidating their victims into "settling" (writing big checks) without bothersome due process. In this non-case, however, the government would be smarter to settle out of court by handing Martha Stewart a big check to compensate for a year of slanderous lies and leaks about her. If this sleazy mess ever goes to court, the architects of the fiasco will have to sneak out of court under umbrellas to avoid journalists' embarrassing questions.