Don’t you feel much safer now, with Martha Stewart about to go to prison? She decided to go to prison first, and then appeal later. That makes good business sense, so her company stock went up. But this whole trial and error makes no sense at all, so justice went down.
In late April, economist Thomas Sowell wrote about the Stewart case, questioning (as economists do) the rationale for making insider trading a crime. Sowell is an extraordinarily perceptive scholar. Yet he, too — like Martha Stewart’s relatively uneducated jury — totally misunderstood what crimes she was accused of. “Perjury should of course be a crime,” wrote Sowell. “But insider trading is something else.” Yet Martha Stewart was not charged with perjury or insider trading.
Journalists never tired of misinforming us Martha Stewart was guilty of insider trading. On the evening of her verdict, a public radio show opened with David Brown saying, ‘It’s rare that a case involving insider trading attracts such attention.’ ” A year before, a New York Times editorial claimed Martha Stewart “was tipped by insiders that the Food and Drug Administration was not going to approve” ImClone’s anti‐cancer drug Erbitux. They might as well have said she was accused of murder — that is no less false.
If all these professionals imagined Stewart accused of insider trading, what was some ordinary juror to think? Chappelle Hartridge told reporters the jury felt Stewart’s background as a stockbroker meant “she should have known her moves were illegal.” What he could not possibly know was that her stock sale was not illegal. Judge Cederbaum prohibited Stewart’s defense from even mentioning that her sale of ImClone stock was 100 percent legal. That is why she should win on appeal. But she has been riding a powerful railroad, and it’s hard stop.
You might hope the Stewart case would at least be understood by Andrew C. McCarthy, former chief federal prosecutor from the Southern District of New York (where the Stewart case was filed) and now a contributor to National Review Online. Sure, prosecutors are a self‐protective club. But enough is enough.
In mid‐July, McCarthy wrote that “Martha Stewart engaged in financial shenanigans that were arguably criminal and incontestably sleazy.” But sleazy is not a crime, and calling her stock sale “arguably criminal” was fatuous.
McCarthy says, “Lying to police is always serious business.” But lying to police is not a crime unless it is under oath (perjury). Besides, accusations of lying by Martha Stewart originated with congressional staffers, not police.
The Stewart trial pivoted on a June 12, 2002, letter from her attorney, James F. Fitzpatrick, which first raised a totally irrelevant point about some “understanding … to sell below $60 per share.” I believe there was such an informal understanding (the only kind her brokerage allowed for NASDAQ stock). But there was no reason for Stewart’s lawyer to offer any reason for the sale. ImClone had fallen from $70 on Dec. 14 (when short sales of ImClone hit 77 million shares) to $58 by the time Stewart sold. You didn’t need insider information to sell before Stewart did — you just needed to watch CNBC. But the decision to send the Justice Department after Stewart began even before Fitzpatrick offered that superfluous explanation.
McCarthy pretends that Stewart’s true statement — that she did not receive any tip from ImClone founder Sam Waksal — was in some way obstructing justice in Waksal’s prosecution. He writes that because “Waksal’s financial fraud was worth probing, there can be no serious doubt that making false statements to the investigators should have been treated as a felony.”
The Feds first assault on Martha Stewart was launched on June 6, 2002 — the day she became a director of the New York Stock Exchange (these fellows play rough). That was six days before Sam Waksal was even charged. First things first. How much political publicity can congressmen expect from some guy in a suit?
The endless smear campaign against Stewart began with press leaks from the powerful House Energy and Commerce committee, chaired by Billy Tauzin, R‐La. Rep. Jim Greenwood, R‐Pa., directed the subcommittee “investigating” (which means hoping to get press coverage and C-SPAN) these trivial side‐effects of the FDA’s homicidal refusal to approve ImClone’s lifesaving drug.
This carefully planted story was designed to make sure the headlines would read “Martha Stewart’s Insider Trading Scandal.” Sure enough, Waksal was merely a sideshow. Nameless sources “close to the investigation” insinuated that Martha Stewart sold ImClone shares because of tip from Waksal, supposedly an ex‐lover.
For hungry reporters, it just doesn’t get much better than that. The Associated Press version said, “There are allegations that certain people profited handsomely, although illegally, from ImClone stock. … A source close to the investigation said, on condition of anonymity (that) legal documents given to the committee show that domestic doyenne Martha Stewart also shed 3,000 ImClone shares. Stewart and Waksal have been romantically linked in the past.”
The anchor of Minnesota Public Radio, Cheryl Glaser, whispered: “It looks like Martha Stewart may have kissed and sold. The doyenne of domesticity has been romantically linked to a man who until two weeks ago was the CEO of a biotech firm named ImClone. … That’s prompted whispers about insider trading.”
The whole story was a total fraud, including the romantic twist (Waksal once dated Stewart’s daughter, not Martha). Waksal did not tip Stewart. Yet this sleazy political lie nonetheless cut the stock price of Stewart’s company in half, confiscating half of her wealth without bothering with a trial.
Andrew McCarthy nonetheless insists that all is well, because Stewart “had a choice, she did not have to speak with the agents. … That’s the power of the Fifth Amendment.” Oh really?
On Sept. 10, 2002, Tauzin and Greenwood wrote to Attorney General John Ashcroft suggesting Martha Stewart be prosecuted for daring to invoke the Fifth Amendment: