Martha Stewart is the Michael
Milken of this decade.
This doesn`t mean that Martha–or
Milken– is a big time financial crook.
Daniel Fischel, professor of law and former dean of
the University of Chicago Law School, demonstrated
Milken`s innocence in his book,
Payback: The Conspiracy to Destroy Michael Milken and
His Financial Revolution. Wall Street wanted
Milken and his upstart firm out of the way. Rudolph
Giuliani, U.S. Attorney for the Southern District of New
York, wanted to be mayor of New York. Milken was
Giuliani`s career ticket.
Martha Stewart is the career ticket
for James B. Comey, the current U.S. Attorney for the
Southern District of New York.
Conservatives feel no sympathy for
Martha. She is one of those rich people who support the
Democratic Party, the raison d`être of which is
to dispossess rich people like Martha. However, at stake
rule of law, not Martha.
The rule of law is what protects us
from wrongful prosecution, injustice and tyranny. It
behooves us to object when an ambitious prosecutor like
Comey takes liberties with the law.
Martha Stewart is indicted, because
in December 2001 she sold her shares of ImClone stock
the day before the company announced that its cancer
drug, Erbitux, was not approved by the FDA. Martha`s
indictment originated in speculation that Sam Waksal,
the CEO of ImClone, gave her “inside information” that
the FDA had turned down the company`s application.
The investigation established that
neither Martha nor her broker had any inside
information. Martha`s broker noticed that Waksal was
selling his shares and that the price was declining. He
relayed the information to Martha.
A CEO might sell shares in a
company he heads for a variety of reasons, but it is
usually regarded as a sign that management has lost
confidence in the company`s prospects–a good reason for
investors to sell the stock.
If Martha had made a large
speculative investment in ImClone based on Erbitux, she
might have been following the FDA process. She could
have concluded that Waksal`s sale of ImClone shares
meant the drug had failed to gain approval. But this
would not be a crime. Moreover, her investment was too
modest to have any material effect on her wealth or to
occupy her time in following the stock.
Martha and her broker had good
reason not to suspect that Waksal`s sale
indicated FDA disapproval of Erbitux. Insider trading
applies to persons with a fiduciary relationship with
the firm–a relationship that a CEO clearly has. As
Waksal had inside information, his sale of shares prior
to the public announcement is a red flag. Neither Martha
nor her broker had any reason to believe that Waksal had
gone off his head and decided to get himself indicted.
As neither Martha nor her broker
had a fiduciary relationship with ImClone and as neither
knew of the FDA decision, no felony charge of insider
trading could be brought against her. An ambitious
prosecutor might bring a civil action, arguing that
knowledge that Waksal was selling is a form of inside
information. But that should be the extent of the
What, then, is the basis of Mr.
Comey`s indictment of Martha for felony “securities
fraud”? Hold on to your hat. Comey indicted Martha
because she publicly declared her innocence!
According to Comey`s
“new legal twist” (prosecutorial language for
acknowledging that the “crime” is not on the statute
books), Martha`s declaration of innocence constitutes an
illegal manipulation of the stock of her own company,
Martha Stewart Living Omnimedia. By declaring her
innocence, Comey alleges, Martha was attempting to
prevent her indictment from driving down the shares of
her company, which depends on her leadership.
Comey`s invented charge ignores
the fact that in our legal system a person is innocent
until proven guilty. At the time Martha declared her
innocence, she had neither been tried nor found guilty.
Martha is indicted for refusing to incriminate
herself and publicly confess to Comey`s charge.
Comey follows up this preposterous
charge with another. He indicts Martha for covering
up a crime of which she is not accused! Comey
accuses Martha and her broker of
obstructing the investigation of their insider
trading; yet, the investigation was not only
successfully concluded, but also found no basis for a
felony charge of insider trading.
Law is supposed to be certain. But
Martha owes her obstruction of justice charge to the
uncertainty of the insider trading law. In a letter to
the Washington Times (June 12, 2003) defending
the indictment of Martha as an opportunity to make an
example of a high profile person, U.S. Department of
Justice (sic) official Corey J. Smith
wrote: “Insider trading is a complicated area of
criminal law, and it is not always clear who can be
charged with it.”
When a criminal investigation of
insider trading in ImClone stock was initiated following
the public announcement on Erbitux, Martha and her
broker could not know whether they would be swept up in
an expansive interpretation of a crime that lacks
clarity concerning “who can be charged with it.” To
protect themselves from a vague and undefined crime,
they doctored their story. It is the doctored story that
constitutes the obstruction of justice charge.
Regardless of your opinion of
Martha, do you want to live under a
Catch-22 legal system like the one Comey has devised
in which a person must incriminate oneself or be
indicted for fraud?
Paul Craig Roberts is
the author of The
New Color Line: How Quotas And Privilege Destroy
Democracy, with Lawrence