Legal Ethics and Reform

Martha Stewart ..... a Victim of Selective Prosecutorial Outrage and Procedural Irregularities

The Martha Stewart trial has come to an end. She is guilty of lying to prosecutors, obstruction of justice, and conspiracy. She was not charged with and is therefore not found guilty of insider trading, the violation that led the prosecutors to her in the first place.

Going back to the beginning, Martha found herself in a terrible box. She was faced with a bunch of prosecutors(lawyers) in her face asking questions about the sale of her Imclone stock. Martha was the president of another publicly traded company and a member of the board of the NYSE. She felt obligated to speak to these prosecutors. Her story didn't hang together very well but her stockbroker agreed with her that they had had an understanding to sell her stock at 60 the price at which she sold. So the insider trading charge was dead, but the prosecutors didn't like the inconsistencies in the rest of her story so they went after her and her stock broker for conspiracy, obstruction of justice, and lying to prosecutors.

To better understand Martha Stewart's case, it is important to understand the way prosecutors normally handle perjury. If a plaintiff in say a typical contracts case is injured by perjury during trial, and decided to get proof to substantiate the perjury, and then takes the proof substantiating the perjury to the local prosecutor's office, he will be denied an audience and will be told perjury is so common that we can't even look into the situation much less pursue it. So the rule of thumb prosecutors use is quite simple: If someone lies to us or in a trial we are conducting, we will go after them, but for everyone else we forget it. The injured party is told to "grin and bear it".

There are aspects of this that are very troubling:

(1) Lawyers are formally trained in law school to dissemble (a form of lying) so Martha Stewart was accused and convicted of lying to liars. In the contracts case described earlier the perjury was committed in open court presumably in front of a jury. Common sense says lying to jurors has to be more serious than lying to another liar, and yet the cases got totally different treatment. The difference of course is the power of those offended by the lies. In one case, it was a lowly litigant just trying to get a just result who could not get the attention of the local Prosecuting Attorney. In the other case, it was a lawyer (a prosecutor) that felt aggrieved and had the power to take action on his own.

(2) The U S Constitution has an amendment guaranteeing the right to freedom of speech. The Amendment doesn't say "freedom for only truthful speech". Until 2001 the exceptions to this freedom were very few in number (e.g. people could not shout "fire" in a crowded theater unless it was true, they couldn't lie in a court room under oath). But in 2001 the Congress, in its infinite wisdom, decided to extend the requirement for complete candor to interviews of possible wrong doers by Federal prosecutors in their offices. This extension is probably a violation of the First Amendment, but it will have to be tested in the US Supreme Court before that determination is finally made.

(3) Martha Stewart was criticized by commentators for not settling this case prior to trial. The details of the settlement negotiation are not known, but what is known are the charges that the Feds decided to try her on. In that list of charges was one saying that she acted the way she did to prop up the price of Martha Stewart Omni Media (MSO on the NYSE). This charge was for stock manipulation and fraud and was by far the most important charge against her as the trial began. During the trial this charge was dismissed by the trial court judge. If the prosecutors had been attempting to get her to settle by admitting guilt on this charge, Martha had to resist and go to trial if she ever wanted to be active in her company or any other publicly traded company again. This was a frivolous charge and the Feds knew it. However, they used it as a hammer to either force Martha to trial or more likely get her to agree to particularly onerous admissions, fines, and jail time. Martha is to be congratulated for her steadfastness in standing up to the Feds on this frivolous charge.

(4) The investigation against Martha Stewart involved insider trading of Imclone stock. This was never charged at trial. It may have been part of the settlement negotiations, but they just didn't charge Martha with this violation at trial. In many countries prosecutors are not allowed to charge on anything if they do not also charge on the violation that started the investigation in the first place. It is also interesting that in several advanced countries, insider trading is not even a crime. The economic theory and practical fact of insider trading is that (a) insiders are often wrong about their assessment of what will or won't move a stock's price, (b) insiders that are right about the direction a stock's price will go are oftentimes wrong about the timing of that move, and (c) dramatic insider information (good or bad) can move from person to person quite quickly if those in the know are allowed to talk. Markets in societies that allow news to circulate freely adjust to the news rapidly and less violently than markets in societies that blockade news and release it to the "whole world" suddenly via a press release delayed by hours or days.

(5) Although the prosecutors decided not to charge Martha with the original insider trading count. However, these same prosecutors accused Martha of insider trading over a dozen times in their opening statement to the jury. This tactic was necessary to tie Martha's lying to something that was "big, bad, and important". This tactic had the effect of convicting Martha of insider trading in the jury's mind without requiring the prosecutors to actually prove their allegations. The defense team sensed this and immediately asked that they be allowed to present counter information to the jury on the insider trading issue. The judge denied the defense the right to refute the prosecution's arguments.

(6) This was a case about lying. After the trial the Secret Service expert witness who testified on ink and paper was found to have lied under oath and is now being prosecuted for perjury. In addition, one of the jurors was found to have lied during jury select about his background so he would have a better chance of being selectedn for the jury. The defense moved for a new trial based upon this lying behavior by others, but the judge denied the motion.

(7) Martha was charged with lying to Federal authorities under a 2001 Law. This law has created so much confusion that the Federal prosecutors have developed a form to give people being interrogated to explain the new rules about lying. Unfortunately Martha was not given a copy of this form before her interview.

(8) Early on in the process Martha had a lawyer (not a criminal lawyer) who gave her bad advice about what she could and couldn't do and say. His advice proved to be disastrous. The lawyer was obviously not current on the tactics of Federal Prosecutors. Chief Justice Berger once pointed out that 80% to 90% of the lawyers handling cases in America are not qualified to do so. It appears that Martha got advice from one of these incompetent lawyer.

Should Martha Stewart have dissembled about what she did? Of course not, but what eventually transpired was a travesty particularly in light of what our legal system has dished out to really bad actors such as O. J. Simpson.

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