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Commentary ::
National Review admits: Martha is Guilty, Fair and Square
16 Mar 2004
Why did we spend over two years ridiculing the Clinton apologists? If lies about criminal stock fraud are even less worthy of prosecution than lies about sex, I think I owe the former president an apology.
Leave the Martha Stewart verdict alone
National Republic, March 11, 2004

Awash in the Martha postmortem, I keep getting this queasy feeling when comments about the case spring from conservatives I always regard as beacons on the stormy sea -- stalwarts like Stephen Moore (See: "What’s Wrong with Insider Trading?" and John O'Sullivan (See: "Ms. Perfect" On the low ebb, the feeling just whispers, "How is it that people so reliably right can get something so thoroughly wrong?" But it's worse when the tide rises and I find my self-removing the words "Martha Stewart" from the coverage, replacing them with "Bill Clinton."

Martha Stewart is as guilty as the day is long. She was not prosecuted just because she was a celebrity; in fact, her notoriety probably accrued more to her advantage than not. The charging decision made in her case was a model of measured fairness, to the point that it actually departed from a central tenet of strategic prosecutorial charging: namely, that once the decision is made to go forward, the case should be charged in a manner that provides the best chance of conviction on the core criminal conduct.

In considering the dissenting views, I can't help but ask: Why did we spend over two years ridiculing the Clinton apologists? If what we're effectively saying is that lies about arguably criminal stock fraud are even less worthy of prosecution than lies about incontestably non-criminal sexual harassment, I think I owe the former president an apology.

Pace Mr. Moore, Martha Stewart was not "railroaded." Not even close. And Mr. O'Sullivan's depiction of wild-eyed prosecutors bereft of any sense of proportion or decency in confronting a first offender is beneath him. The deliberation and exercise of charging discretion by then-U.S. Attorney James B. Comey were exemplary. (Full disclosure: Now-Deputy Attorney General Comey and I have been friends for many years, and I was on his executive staff at the time of Stewart's indictment. I have not discussed Stewart's conviction with him, and the opinions expressed here are strictly my own.)

Moore could not be more correct that insider trading -- engaging in securities transactions based on material, non-public information -- is a dubious crime. It is political correctness run amok: the fantasy that mere mortals are capable of designing a level playing field in which everyone from Bill Gates to my mom trades on equivalent information. The crime also gets loopier as it devolves from its less murky "traditional" theory -- based on a breach of the fiduciary duty the law says an actual corporate insider owes to the corporation's shareholders -- to the super-elastic "misappropriation" theory, which dramatically extends liability to those who have no such duty but trade on inside information they know was obtained through the violation of some third party's fiduciary obligation.

But notwithstanding the pining from the free-enterprise gallery, a prosecutor's decision to charge insider trading is not a referendum on whether it is a good idea for Congress to have invented this offense. To say that Martha shouldn't have been charged because insider trading is a murky crime does nothing to establish that she was unfairly singled out due to her celebrity. It is instead to say that no one should be charged with insider trading -- and that may be a good idea, but it ain't the law.

It is also a very strange position for conservatives to take while simultaneously (and quite properly) complaining about Senate Democrats blocking the nomination of able conservative judicial nominees. If laws are bad laws, they ought to be changed through the normal political process. When judicial nominees (or those tapped to serve as U.S. attorneys) say they will follow their oaths to apply even those laws they disagree with, we want that to be credible, because it should be the norm. Politicized law isn't any more attractive when it's done from the Right, and it makes it that much harder to combat the rampant activism from the Left.

In any event, the law of insider trading is a whole lot more developed than the law of sexual harassment. I don't recall too many of the Clinton-bashers arguing that the president should be let off the hook for his mendacity simply because it arose out of a lawsuit of questionable pedigree. In those days, the high-minded rejoinder to the "it's just lies about sex" talking points was about the rule of law and the integrity of the process on which organized society, public safety, and commerce depend. It was right then, and it's right now.

Under settled legal standards, a person such as Stewart, who trades after being tipped off to material, non-public information, may be found guilty of insider trading under the misappropriation theory if she knows the tip came from a violation of someone else's fiduciary duty. In this case, the tipper was Ms. Stewart's broker and eventual codefendant, Peter Baconovic, who learned that another client, Sam Waksal, was dumping his ImClone stock and improperly advised Ms. Stewart to dump hers as well. With due respect to Mr. O'Sullivan, Ms. Stewart did not trade "on her broker's inference"; she traded after her broker explicitly told her Waksal was bailing out. Ms. Stewart -- a former stockbroker, CEO, and member of the board of the New York Stock Exchange -- has had the good grace to never pretend to be unaware that it was a breach for Mr. Bacanovic to be sharing one client's confidential information with another.

Which gets back to the railroad point. The critics stubbornly maintain that Ms. Stewart's cover-up should have been overlooked because the behavior it was intended to camouflage was not itself a crime. This is nonsense, just like "lies about sex" was once nonsense, and will not go away merely because it is energetically repeated -- this time in a conservative echo chamber. To begin with, it was a crime. Martha Stewart was guilty of insider trading under the misappropriation theory. Had the charge been submitted to the jury with proper legal instructions, she would have been convicted. But it was not submitted, because she was not indicted for it. Why? Not because she was innocent, but because the supposedly headline-hungry, railroading, overzealous prosecutor benignly decided the charge would be disproportionate under the circumstances.

What circumstances? Well the most important one is that, on the same day Stewart was indicted, she was also charged civilly in an SEC complaint with the very same insider-trading conduct. This is especially significant given those, like O'Sullivan, who not only insist that Stewart didn't commit insider trading but add that "[t]he feds reached that same conclusion, and never charged her with the offense." The foot stomping about how even the government believed she was innocent of the underlying crime is unworthy: The existence of the civil complaint has been a highly public fact for a very long time. It is, of course, an inconvenient fact for those who want to paint Martha as the victim of rogue fame-seekers. It gets too close to the truth.

That truth is this: The government determined, in an abundance of fairness, that even though Ms. Stewart was criminally culpable for insider trading, the public interest would be satisfied better by a civil-enforcement action than a criminal charge, given that Stewart was a first offender and her crime involved comparative chump change (less than $50,000). Stewart was therefore not treated more harshly -- due to her celebrity -- than the typical first offender in similar circumstances, who would ordinarily be allowed to settle the matter civilly with the SEC.

On the other hand, no responsible prosecutor on the planet would have turned a blind eye to serial lying and evidence tampering on the scale that constituted the core criminal conduct of this case. The most anonymous citizen would have been charged for committing it, and it would have been an outrage to give Stewart a pass on it simply because of her celebrity.

Lying to investigators is serious business under any circumstances. It was excruciating during the Clinton fiasco to watch the flacks and the slavishly compliant media work tirelessly to create, and succeed in creating, an ethos of flippancy about so elemental a principle as the public's entitlement to truthful answers when its investigative and judicial resources are expended. It was often commendably observed, almost exclusively by the Right, that the privilege of living in a country that permits one to remain silent, and prohibits in criminal proceedings the drawing of any negative inference from that silence, puts an even greater premium on the duty to be honest if one chooses to speak. It has never been necessary for any underlying crime to have been committed by anybody in order to hold a liar accountable.

With that in mind, the decision not to indict Stewart for insider trading seems all the more beneficent. It is often said that a private lawyer's obligation is to his client, but a public prosecutor's duty is to do justice. Justice is not technical guilt; that is but one of an array of factors that includes proportionality, criminal history, and the public interest. Nevertheless, once the weighty decision to indict is made, the government charges in a manner that is designed to win at trial. In this case, however, out of solicitude for Stewart, and in a vain attempt to counter the inevitable claim that it was celebrity stalking, the government charged to lose. In an obstruction case, it gave Stewart a pass on an underlying crime it was convinced she'd committed, even though doing so necessarily handed the defendant her best trial and public-relations defense: that the cover-up, no matter how reprehensibly executed, couldn't have been all that serious. That Stewart was convicted anyway attests to just how patently inexcusable her behavior was.

Equally baseless is O'Sullivan's assertion that the rabid prosecutors were so hell-bent on getting Stewart that they tossed in a securities-fraud charge that "alleged that for her even to maintain she was innocent was itself a crime." A little background: After the news that Waksal had been arrested and charged became public, the stock of Martha Stewart Living Omnimedia began to tumble -- not surprising, given how intimately identified Stewart was in the public mind with both Waksal's woes and her own company. She understandably wanted to make a public statement to try to stanch the bleeding.

If all she had said was "I am innocent," O'Sullivan would have a powerful point: In America, one is entitled to proclaim innocence and put the government to its burden of proving otherwise. That, however, is worlds away from what Stewart did. Not content to leave it at a claim of innocence, she elaborated with an extensive, affirmative explanation that was arrantly false and misleading -- the same cockamamie story about a predetermined $60-dollar strike-price sale agreement with her broker, and the same lies about the content of the fateful conversation that led to her to dump the stock -- the one the jury laughed out of the courtroom. The same tale Stewart wisely elected not to testify about at the trial.

Making affirmative, material misstatements in order to affect the market price of stock is a crime. And contrary to O'Sullivan's description, the charge was not thrown out because it violated due process. It was thrown out because the trial judge, in a ruling that could easily have gone the other way, found insufficient evidence that Ms. Stewart's obvious lies were specifically intended to deceive investors.

Back at the height of the Clinton scandal, when we were all being libeled as zealots, I remember taking some comfort in a Supreme Court case called Brogan v. United States. Confronted by a claim that the Constitution would be offended if the government were to prosecute a person merely for falsely denying his guilt, Justice Scalia's retort is worth repeating:

... [Defendant] argues that a literal reading of [the false-statements law] violates the "spirit" of the Fifth Amendment because it places a "cornered suspect" in the "cruel trilemma" of admitting guilt, remaining silent, or falsely denying guilt.... This "trilemma" is wholly of the guilty suspect's own making, of course. An innocent person will not find himself in a similar quandary (as one commentator has put it, the innocent person lacks even a "lemma[.]"... ) And even the honest and contrite guilty person will not regard the third prong of the "trilemma" (the blatant lie) as an available option. The bon mot "cruel trilemma" [was] first...used [in a 1964 case] to explain the importance of a suspect's Fifth Amendment right to remain silent when subpoenaed to testify in an official inquiry. Without that right, the opinion said, he would be exposed "to the cruel trilemma of self-accusation, perjury or contempt."... [For the defendant here,] the elements of this "cruel trilemma" have now been altered -- ratcheted up, as it were, so that the right to remain silent, which was the liberation from the original trilemma, is now itself a cruelty. We are not disposed to write into our law this species of compassion inflation ...

Nor should we write it into our philosophy of governance. One is not required to speak. But even if the subject matter of a case is a trendy fad like insider trading or sexual harassment, the duty to be forthright if one chooses to speak to courts or investigators lies at the core of civil society. Martha Stewart's prosecution was a worthy validation of that duty.

Andrew C. McCarthy is a former chief federal prosecutor, who led the 1995 case against Sheik Omar Abdel Rahman.
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