Bloomberg Columnists
Ann Woolner is a columnist for Bloomberg News. The opinions expressed are her own.
Martha Stewart Teaches Lesson on Talking to Press: Ann Woolner
Nov. 21 (Bloomberg) -- This serves as warning to anyone who plies lame tales to reporters to wriggle out of trouble. You know who you are.
Before you find yourself crossing your fingers while talking to a journalist, consider Martha Stewart's plight. She told the press it wasn't really inside information but a pre-set sell price that prompted her to unload her ImClone Systems stock just before it tanked.
Alas, prosecutors didn't believe her. So the United States government pressed into service the full force of its prosecutorial powers to find the truth. The office of then-U.S. Attorney James Comey in Manhattan declared her press statements not only lies but an act of securities fraud, punishable by 10 years in prison. That's right. Ten years.
``This is unquestionably a novel application of the securities law,'' U.S. District Judge Miriam Cedarbaum said Wednesday to a hushed courtroom in Manhattan.
However unusual, Cedarbaum said she couldn't intervene because the law makes it almost impossible to dismiss a charge before trial.
Novel is one way to put it. Unfair is another. Unable to get Stewart for insider trading and under pressure to prosecute high profile cases of corporate misdeeds, the feds stitched together this bizarre charge.
Punishing Sources
That's said as a concerned citizen. As a journalist who's often wished for ways to punish lying sources, I have this to say: Heh, heh, heh.
As anyone knows who reads financial news or grocery store tabloids, prosecutors first suspected that Stewart's friend, ImClone founder, Samuel Waksal, had given her an inside tip. He knew the U.S. Food and Drug Administration was about to reject ImClone's cancer drug, Erbitux, which would send ImClone's stock into a tailspin.
When prosecutors found no evidence of a Waksal tip to Stewart, they switched theories. They now say she unloaded her ImClone stock because her Merrill Lynch broker, Peter Bacanovic, told her Waksal was dumping his. No insider trading there.
The determined folks in Comey's office persevered. They figured they could still charge her with stock fraud by alleging she concocted the pre-set stock price story to stop the slide in Martha Stewart Living Omnimedia Inc., stock, which had been hurt by the constant news of her suspected ImClone insider trading.
Most Valuable Asset
``Martha Stewart lied to the public forcefully and repeatedly, and did so to deceive investors into believing that MSLO's most valuable asset -- her reputation and the brand name that adorned each of MSLO's products -- would not diminish in value,'' prosecutors wrote in arguments to Cedarbaum.
Never mind that the whole reason she was talking about ImClone was that everyone knew the feds were investigating her on allegations that turned out to be false. And never mind that Stewart didn't even mention MSLO when explaining her ImClone trades, though the fraud was allegedly committed against MSLO investors.
Creative prosecution? Oh yeah. Driven by ire over the belief that she lied to them? But if a jury decides Stewart lied, and that her lies were material to a reasonable investor considering MSLO shares, voila, you've got a stock fraud conviction!
What about her right to free speech? Shouldn't she be free to explain a personal investment choice amid an unrelenting torrent of bogus accusations?
Crime of Mendacity
``The Constitution does not prohibit the prosecution of lies that are part of a course of criminal conduct,'' Cedarbaum said Wednesday.
Are you listening out there, you who stand poised to commit mendacity against a reporter?
I know, it's not just any ole lie told by any ole miscreant that can spur a federal grand jury into action.
``It's very unusual to have an individual like this who is essentially the alter ego of the company,'' says Michael Perino, securities law professor at St. John's University in Jamaica, New York. ``Yes, you're putting out a personal press release, but given that Martha Stewart is so intricately tied in with her company,'' he says, ``an investor could consider that important.''
No `No Comment'
Stewart could simply have offered no comment or issued a boilerplate denial of wrongdoing. Either would have kept her from a stock fraud charge. But only a detailed explanation could begin to soften the edge of such biting publicity.
Is it right to be prosecuted under these circumstances?
If the government's allegations are true, she would indeed be guilty of securities fraud, says David Marder, a former Securities and Exchange Commission lawyer now in private practice.
But Marder says he would not have brought that charge if he were the prosecutor because it lacks jury appeal.
``From a jury's perspective, the government may be viewed as a little overbearing or overreaching,'' says Marder, a partner in Boston's Robins, Kaplan, Miller & Ciresi. ``I think it's going to undermine the rest of the case.''
Marder says the other charges against Stewart, obstructing justice, perjury and conspiring with Bacanovic to mislead the government, appear stronger than the stock-fraud count. But it's that charge, the one I call the lying-to-journalists count, that could send her away for a decade.
It is, indeed, a rare set of circumstances that can get a newsmaker prosecuted for lying to the press. So far, there's been only one such set.
Who's Number Two?
But who wants to risk becoming number two? Who can be sure that these prosecutors haven't opened the door to even more creative uses of the law?
The next time any journalist (including this one) asks for your side of the story, no matter how embarrassing it may be, just tell the truth.
The whole truth and nothing but the truth.
Last Updated: November 21, 2003 00:08 EST
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