Man Without Qualities

Tuesday, July 01, 2003

The Curiously Weak Case Against Martha Stewart

Remember all that classy DNA evidence that the O.J. Simpson prosecutors thought was so convincing but that made the jury's eyes glaze over? Well, the prosecutors preparing the case against Martha Stewart seem to have even less, as the Wall Street Journal reports:

In the case against Ms. Stewart, a key piece of evidence is a tiny, handwritten notation made by her stockbroker on a trading worksheet filled with similar scribbles. Prosecutors claim the broker belatedly inserted the note to help cover up Ms. Stewart's improper stock trading. Their support: Laboratory analysis showing that the blue ballpoint ink he used is different from ink elsewhere on the document. ....

In the Martha Stewart case, the analysis task was ... differentiating between two inks on a single document. When investigators started asking questions about Ms. Stewart's sale of ImClone Systems Inc. shares just ahead of negative news, Ms. Stewart claimed that she had a pre-existing arrangement with her broker, Mr. Bacanovic, to sell the shares if they fell below $60. To support that claim, prosecutors say, Mr. Bacanovic added a tiny "@60" beside the ImClone name on a worksheet on which he had previously jotted notes about planned sales of Ms. Stewart's other holdings. The notation, prosecutors claim, was added sometime in the five weeks after the trade. .... A person close to the case says Ms. Stewart's lawyers are likely to press the government to prove that the notation was added later, not just that a different pen was used. This person says it's possible Mr. Bacanovic could have been interrupted when originally marking up the document and had simply picked up a different pen. "What matters is the time period, not the pen," the person adds. ... [S]cientists can use extraction tests to date many ink samples... The longer [ink] has been on [paper], the less of it will come out. But ... the tests are only fine enough to differentiate between samples six months apart, not the five weeks or less alleged with Mr. Bacanovic's worksheet. ...

Sure. This is a key piece of evidence? That gets you to proof beyond a reasonable doubt? Sure it does. Just keep saying that, Mr. Prosecutor. You've got her. Sure you do.

The case against Ms. Stewart is, to my eye, emerging as so weak that again one must ask the question: Why is the Justice Department prosecuting Martha Stewart?

I do not mean that question as a rhetorical device or one with an obvious answer ("They shouldn't."). No. I suspect there is more here. Namely, I suspect that the SEC and the Justice Department are aware of many other incidents in which Ms. Stewart is strongly suspected to have committed federal securities crimes - but the authorities can't prove those crimes, either.

I suspect this because it is more than passing strange that a brilliant, successful, politically-connected businesswoman such as Ms. Stewart - who is so admirable in so many ways, despite the carpings of her rather obviously envious detractors - should be the focus of such strenuous enforcement efforts for her first offense, especially where that offense netted her so little money and civil and business penalties (loss of her NYSE seat, fall of her own company's stock price, high civil fines, bad publicity, etc) have already been so serious. What's going on?

A similar question was raised by the prosecution and conviction of Wynona Ryder for shoplifting at Saks Fifth Avenue in Beverly Hills. Wouldn't it have been enough for the police to confront her and warn her and for Saks to have made her pay trans-full-retail prices for the stolen merchandise - maybe obtain her contribution of a largish sum to some charity and her agreement to do some community service? All without actually prosecuting or arresting her?

Well, yes - for a first offender. Say what one will about the need to make examples of the successful, the fact is that if the Beverly Hills incident had been her first offense Ms. Ryder probably would not have been prosecuted. Neither Saks nor the district attorney would have wanted that.

But it likely wasn't Ms. Ryder's first offense: Transcripts made public after the trial disclosed that Ryder was suspected of shoplifting from two other high-end department stores in the past, but no charges were filed. Prosecutors were not allowed to present those allegations during the trial.

Yes, prosecutors were not allowed to present those allegations during the trial - but those earlier incidents almost certainly affected the exercise of discretion on the part of both the prosecutors and Saks to press forward with charges against Ms. Ryder.

Similarly, my guess is that Ms. Stewart has long inhabited that peculiar Park Avenue demi-monde in which insider stock tips are traded at parties like the names of new hot boutiques. It would be interesting to see the SEC's and DOJ's files on Ms. Stewart. How many past incidents have terminated with a personal belief on the investigator's part that Ms. Stewart broke the law, but with no action other than a memo to files to "watch" her in the future? If Ms. Stewart has such files, it would be a rare member of Congress who would act vigorously on her behalf.

In any event, the "watching" has now ended in legal action. But it has not ended in an "insider trading" charge, only in an "obstruction of justice" charge - further admission by the prosecutors that their case is very weak. And unless the evidence against Ms. Stewart is a lot bulkier than what has already been disclosed, the case is still highly unlikely to result in a conviction. What kind of message will that send to Park Avenue?

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