http://www.cbsnews.com/stories/2003/06/03/national/main556695.shtml



Feds Say Martha Speech Was Crime
NEW YORK, June 6, 2003


Martha Stewart is accused of deliberately trying to inflate the stock of her own company — simply by declaring her innocence.

Inserting an unusual twist into their indictment of the domestic diva, prosecutors charge that she committed a crime when she stood up in public last summer and denied engaging in insider trading.

"I was a little surprised at that," said Richard A. Serafini, a former economic crimes prosecutor in New York. "There's kind of a natural tendency when you're confronted with something to deny it. Now they're charging it as market manipulation."

Legal experts said the charge is a high-risk move designed to convince a jury that Stewart hurt thousands of ordinary stockholders in Martha Stewart Living Omnimedia by trying to cover up her legal problems.

Stewart was indicted Wednesday on five federal counts — including obstruction of justice, conspiracy and lying to investigators — tied to her December 2001 sale of nearly 4,000 shares of ImClone Systems stock.

She pleaded innocent to all charges, but could go to prison for several years if convicted. Her former stockbroker, Peter Bacanovic, was also indicted and pleaded innocent.

Stewart dumped her ImClone stock one day before the government issued discouraging news about an ImClone cancer drug.

The government says Stewart had inside knowledge the stock was about to plummet; she contends that she had a standing agreement with Bacanovic to sell the ImClone stock if the price dipped below a specified level.

But it was the charge of securities fraud — placed near the end of the 41-page indictment — that surprised many legal watchers.

The charge cited a speech Stewart gave at an investors conference in New York on June 19, 2002, a week after ImClone founder Samuel Waksal, her longtime friend, was arrested on fraud charges.

In the speech, Stewart maintained her sale of ImClone had been perfectly legal, and that she was cooperating "fully and to the best of my ability with investigators."

Prosecutors say those were lies designed to pump up the stock price of her company. Martha Stewart Living Omnimedia rose more than $2, or about 14 percent, to $16.45 after her speech. The stock now trades at about $10.

The indictment points out that Stewart owned more than 60 million shares of Martha Stewart Living stock — 60 percent of the company's class A stock and all of the firm's class B stock. Her holding comprised 94 percent of all stock outstanding.

"Stewart made these false statements with the intent to defraud and deceive purchasers and sellers of (her company's) common stock and the preserve the value of her own…stock by preventing a decline in the market price," the indictment reads.

"What the government is trying to suggest here is that this was not a victimless crime," Robert Mintz, a former federal prosecutor, said Thursday. "That is clearly the most controversial part of this indictment."

Stewart, 61, resigned as head of the company after the indictment, but said she would stay on the board and remain the company's creative chief.

On Thursday, the home-style guru made an appeal to public opinion, taking out a full-page ad in USA Today and launching a Web site to pronounce herself innocent.

"The government's attempt to criminalize these actions makes no sense to me," Stewart writes in an open letter on the site, which invites her fans to e-mail her with their thoughts.

While legal experts say the securities-fraud charge could be a reach for prosecutors, they say the rest of the indictment amounts to a daunting case against Stewart.

Critical to the government's case is a claim that Stewart went out of her way to cover up a message from Bacanovic on the day of the ImClone stock sale in which he said he believed the stock would fall.

More than a month later, the government says, Stewart accessed her assistant's computer phone log and changed an entry about the message to simply: "Peter Bacanovic re ImClone."

"It's extremely damning evidence," said David Marder, a former Securities and Exchange Commission lawyer. "It goes way back to Richard Nixon — you see people get in more trouble for covering things up than of the actual conduct."

Still, prosecutors did not actually indict Stewart on the charge of insider trading, an extremely difficult charge to prove in a criminal case.

They did not allege she had advance word of the bad news on ImClone — only that she knew the Waksal family was dumping its stock.

Instead, the SEC charged Stewart with insider trading in a civil action filed Wednesday just after the criminal charges.

The complaint seeks to ban Stewart from ever leading a public company and force her and Bacanovic to pay more than $45,000 — the losses they say Stewart avoided by unloading ImClone stock.

Proving insider trading in a civil case requires showing only that a "preponderance of the evidence" implicates the defendant. Convicting someone of insider trading in a criminal case requires proof "beyond a reasonable doubt."

"Clearly, a tactical decision was made to shy away from the more complex securities violations," Mintz said. "The government strategy here is going to be to make this case as simple as possible."

One way to keep it simple, says CBS News legal analyst Andrew Cohen, is to focus on lying — Stewart's alleged untruthfulness to federal investigators as well as the investors who heard her speech.

The impeachment saga of President Clinton, Cohen said, created an awareness of how lying about something to an investigator or prosecutor can be considered criminal, even if the underlying offense is not.

This is turning into the Rubt Ridge of Wall Street.  Fucking arrogant feds should be going after Enron execs and others who caused the loss of pensions and bankruptcy of their employees.  She made a few bucks dumping worthless stock.  Big deal.  Probably happens a couple hundred times a day.

I am going to have to agree with marvl on this one. Although I can not stand the woman she made a few extra bucks the same way most of us would have if a buddy gave us the inside information that the big turd was coming down the pipe so sell now.

I work with an ex Enron employee that lost an awful lot of retirment due to those upper managment suit pukes. [puke]

What a crock of BS.  OK, Martha is a bitch.  So what.  And what is this insider trading stuff all about anyway?  If I heard that a company I invested in was having problems, I would dump stock too.  Just because she heard earlier, she is supposed to hold on to the stock?  Enron broke the law.  Martha dumped some garbage.  Also, if she did have a standing agreement with her broker that it is to be sold at a certain level, then she didn't do anything illegal, period.  

Is it just me or are they REALLY reaching on this one?

Why do folks think this is a railroad job by the SEC?

If the allegations are accurate, Martha got insider information and acted upon that which either protected assets or realized gains.  Insider Trading is serious business and does reduce the trustworthiness of the exchanges.  It doesn't matter if it was $45.00 or $45K.

I can't really see this as analogous to Ruby Ridge.  If she broke the law, she deserves to go down.  I can't see how the SEC set up Martha as the ATF set up Mr Weaver.  There is no comparison.

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"prosecutors charge that she committed a crime when she stood up in public last summer and denied engaging in insider trading. "

The real crime is the feds causing her stock to drop by 2/3s from 1billion to $300M.  When she wins, do they owe her $700M, I think not.

I have to agree.  They should be going after Enron and WorldCom execs and the likes.  They're really stretching with Martha, just because she denied the charges and said she was innocent?  I could be wrong, but isn't that her 5th admendment right?

Eh-hem.

Here is a small passage from a biography on Martha.
----------------------------------------------
Inspiration surrounded Martha at an early age. Raised in Nutley, New Jersey in a family of six children, Martha developed her passion for cooking, gardening and homekeeping in her childhood home on Elm Place. Her mother, a schoolteacher and homemaker, taught her the basics of cooking, baking, canning, and sewing, and her father, a pharmaceutical salesman and avid gardener, introduced her to gardening at the age of three in the family's small but orderly backyard garden. While earning a bachelor's degree in history and architectural history at Barnard College, Martha worked as a model to pay her tuition. She was married in her sophomore year, [b] and upon graduating became a successful stockbroker on Wall Street,[/b] where she gained her early business training. After moving to Westport, Connecticut with her husband and daughter, Alexis, in 1972, she developed a catering business that showcased her remarkable talent and originality. Her unique visual presentation of food and the elegant recipes she created for her catered events were the basis for her first book, Entertaining, published in 1982. One of the most beautiful and influential lifestyle books ever published, Entertaining has become an American classic.
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She was, for a time, the darling of Wall Street. She knew the rules because the rules were her livelihood. She is a criminal first, toaster-cozy fabricator second.

Guilty!

Off with her head! [rolleyes]

The point is ladies and gentlemen that greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through and captures the essence of the evolutionary spirit. Greed, in all of it's forms - greed for life, for money, knowledge - has marked the upward surge of mankind and greed - you mark my words - will not only save Teldar Paper but that other malfunctioning corporation called the USA. Thank you.
[rolleyes] [rolleyes]

I can only remember a few of the first 10 amendments, but I think you meant the [b]1st[/b]
amendment.

1:  Free speech, press, etc.<<2:  This one we all know
4:  Search & seizure
5:  Self - incrimination (don't have to tesitfy against yourself, confess, etc.)
10: States' Rights

We all need to be more knowledgable on this.


I'm with you.  The gubmint has taken close aim, and shot its own foot.

When a law conflicts with a Constitutional right, especially one in the Bill of Rights, the Constitutionnal right should prevail.....

No one with any common sense would say that an accused person who is being tried not only in the courts, but also in the press, can be [b]prevented [/b] from coming to their own defense in the press.

Actually, she'd be stupid [i]not[/i] to, because the feds can't FORCE her to take the stand and question her about her out-of-court statements, even though they might want to.  In fact, I'm doubtful that they can even bring those news articles / other statements into the trial, except maybe in their opening / closing statements, which are not evidence.   Can one of our lawyers chime in one that?  Isn't it all heaarsay?

I think the problem here is that Martha clearly committed crimes, whereas the ilk of Enron, MCI, Global Crossing, etc did despicable things, but it's much harder to nail down who did what, and who knew what when. While it's obvious that someone like Ken Lay is scum, it's hard to clearly show that specific laws were broken and that he is culpable.

In Martha's case, it's pretty clear that a crime was committed, and who made the decisions.  Once she started lying to investigators about it, she just made them pissed off.  She knew the rules, and she broken them.  

They're not going to bother going after someone with pockets as deep as Ken Lay without a really strong case, and they just don't have it.  Charging him and having a trial would just be a huge waste of money (taxpayer money).  

Only in America can a woman make a name for herself crafting delightful decorations and otherwise wholesome endeavors while the whole country cheers as we throw her in jail.

She just did what the other Wall Streeters do on a daily basis. She must not have let someone in who wanted a piece of the action when she went public.

Would her not guilty plea in court constitute a crime as well?  I'm sure her plea would be made public if this BS makes it to trial.

This is BS. She's just an easy target.

Enron and WorldCom should be the priorities, as their crimes are indicative of flaws in the system. That kind of crap should never happen again.

Stewart is a public figure who represents a class of persons the media and the feds enjoy vilifying.

Racer, let me ask you a hypothetical question?

You own a zillion shares of company XYZ.  One day while talking to your broker on the phone, he casually mentions that the the CEO of Company XYZ and his daughter are trying to quickly "dump" their zillion shares.  

You have two choices:

1.  You could ignore this warning sign and alturistically hang on to your shares because this was "insider" information you received.

or

2.  You could treat this as "advice from a broker" and dump your shares to try to minimize your losses.

What would you do?

This was the exact scenario that I read happened in the papers.  Wether this proves to be the way it went down or not remains to be seen.  We'll have to wait and see what the trial brings.

If you used to be a wallstreet broker, then you would INSTANTLY know that it would be illegal to act on it.

If Martha dumped these shares, then she committed a crime, and she knew it. This wasn't some poor housewife who got a good tip - this was a good friend of the CEO who traded (and made money) based on inside knowledge, and who was very knowledgable about the SEC laws.

It's not about whether she felt "altrusistic" it's about whether she felt like obeying the law.

I'm not sure choosing to not break the law falls under the definition of "altrusim".  I didn't rob any banks yesterday - was that an "altrustic" act on my part?

TRW - The scenerio as you described was not how I understood the transaction in the Stewart case.

The way I understand is (please correct me if I am wrong) that Stewart allegedly got information about Imclone not recieving FDA approval for a drug from the former CEO (an insider).  She called her broker to sell her shares and also conspired with the broker to fabricate sell orders to hide the fact she got the news prior to public knowledge of the FDA ruling.

We will have to see how it shakes out.

In your hypothetical situation, how do we know that the information is insider info?  Records of the buying/selling of company stock by insiders is public information.  I can find the records of my CEO's transactions without issue.  As per the SEC, insiders have blackout periods where they are not allowed to conduct  transactions of certain stock.  Why would it not be the case here?  Just because the CEO and his daughter are dumping shares does not mean they are acting on insider info.

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