Martha Cooked Her Own Goose

Spare the sympathy for people who deserve it. When Stewart dumped her ImClone stock, her victims were the little people who bought it

By Bruce Nussbaum

Now that she has been convicted by a jury, let's not give Martha Stewart a pass. Let's not say that because she's a successful, powerful businesswoman, she can corrupt the financial markets, cheat investors out of their money, and obstruct justice without being held accountable. Let's not make Martha Stewart out to be something she herself would adamantly deny she is -- a weak victim of forces beyond her control.

On the contrary. Stewart was part of a club of well-connected Wall Street bankers and CEOs who enriched themselves at the expense of small investors. To those who defend Stewart's transgressions by arguing that she indulged, at worst, in victimless crimes, I say: Rubbish (for an opposing view, see "The System Served Martha an Injustice". Whoever was on the buy side of Martha's sale of ImClone (IMCL ) stock -- which she unloaded after receiving nonpublic information in a tip from her broker's office -- is the real victim here.

Let's put a face on that victim. Was it a mother trying to save for a child's education, a pension fund, a couple building a retirement nest egg? Each of them was destined to lose money when Stewart sold ImClone shares knowing full well that they were about to fall.


  Yes, the government misfired when it trotted out the oddball argument that Stewart lied about selling ImClone shares in order to bolster her own stock in Martha Stewart Living Omnimedia (MSO ). Judge Miriam Cedarbaum was right in dismissing it. But in getting rid of the superfluous securities fraud allegation, the judge focused the jurors' minds on the serious charges against Stewart. And they concluded that she broke the law (see BW Online, 3/09/04, "Please, No Tears for Martha").

Take lying to the Feds. From the very beginning, all Stewart had to say was that she didn't do insider trading. Being honest was the responsible thing to do, especially for the head of a public company who sat on the board of the New York Stock Exchange. Instead, Stewart lied to cover up her actions.

While Martha's defenders may concede her coverup, they point out that the government failed to bring a criminal insider-trading case against her. So is this an example of prosecuting a person for obstruction of justice but not for the underlying crime associated with it?  Not at all. Obstruction of justice is a serious transgression, regardless of whether the behavior being covered up meets the technical definition of criminal insider trading. And the Securities & Exchange Commission is, in fact, pursuing a civil case against Stewart for insider trading.


  While criminal charges must be proved beyond a reasonable doubt, civil charges have to be proved by a preponderance of the evidence. And the chain of relationships involving Stewart on the day she sold her stock -- all public now as a result of the trial -- shows a reasonable case can be made that she indulged in insider trading, at least to my mind.

While not a direct insider in the legal sense of the word, Stewart's broker, Bacanovic, had worked for ImClone CEO Sam Waksal at the biotech outfit and was his broker as well. Waksal, for his part, was Stewart's personal friend and had dated her daughter. Waksal has admitted to insider trading -- selling his stock on learning that the Federal Drug Administration was about to reject ImClone's drug -- on the same day Stewart sold her stock.

Douglas Faneuil, Bacanovic's assistant, testified that his boss told him to call Stewart and tell her that Waksal and his family members were selling their ImClone stock, according to testimony at the trial. Stewart then sold. Knowing that the FDA decision was imminent, it defies belief that in that tight circle, Stewart didn't understand the implication when she was told Waksal was selling.

Stewart continues to assert her innocence, saying she did nothing wrong, and her defense attorney, Robert Morvillo, says she will appeal the four guilty verdicts handed down against her by a U.S. District Court jury on Mar. 5. But one test of a legal system is how it deals with the powerful in society. Giving Martha Stewart a pass would have failed that test.

Nussbaum is editorial page editor for BusinessWeek