The Kafkaesque indictment, trial and conviction of Martha Stewart is a devastating blow both to the US legal system and to belief in the American socio-economic system.
As Lawrence Stratton and I have demonstrated in our book, The Tyranny of Good Intentions, very little remains of the legal protections that once defined the Anglo-American legal system. Today hapless defendants are convicted not only in the absence of criminal intent but also in the absence of statutory felonies.
Martha Stewart was indicted for lying and obstructing justice. For these offenses to have any meaning, there must be a crime that she lied about and obstructed. The prosecutors presented no such crime. Stewart was indicted and convicted for lying and obstructing a crime when no crime happened.
Many Americans believe that Stewart committed "insider trading," because that is the disinformation her prosecutors used their media pimps to disseminate. The prosecutors would have liked to charge Stewart with insider trading, but could not. Stewart learned from her broker, not from a company insider, that a top executive was selling shares.
Since time immemorial, many people have sold shares for the same reason. Brokers call and report that a stock is being sold when the overall market is not. That is an indication that there is bad news in the market about that stock. It is a broker’s job to advise when to hold and when to fold.
Whenever a company announces good or bad news, SEC regulators and prosecutors look to see who sold or bought stock in the period immediately preceding the news. If they find company executives, or anyone whom they can connect to company executives, buying or selling prior to news, they bring a case of insider trading.
Insider trading is a creation of regulatory bureaucrats, not of statutory law. It is an undefined crime. Bureaucrats have refused to define the crime on the grounds that it is easier to convict people of undefined crimes. Many legal scholars maintain that there is no rational reason for making insider trading into an offense.
Prosecutors knew that Stewart was friends with ImClone’s president and jumped to the conclusion that she was tipped off by him. When it became clear that Stewart had the information from her broker, the prosecutors were reluctant to let go of their celebrity target whose demise would boost their careers. The prosecutors decided to make a crime out of a noncrime.
Stewart recognized that they were after her with an undefined crime. Like most people in such a situation, Stewart gave them a story that they would have a hard time twisting into insider trading.
This is the basis for her indictment for lying and obstructing justice.
The Stewart case reminds me of the Ben Lacy case during the 1990s. Lacy was an apple juice producer who made a few mistakes filling out environmental forms over the course of several years. Federal prosecutors chose to interpret the few mistakes as comprising a conspiracy to hide the pollution of a stream behind his plant. As the stream tested pristine, the prosecutors did not accuse him of polluting the stream.
If they had accused him of polluting, evidence of the lack of pollution would have collapsed their case. By accusing him of conspiracy, they were able to keep out of court evidence that the stream was not polluted.
Eventually the prosecutors had to let go of Ben Lacy, but only after they had ruined him financially.
The Martha Stewart jurors should have realized that the case was bogus when the judge threw out the main charge — that she had committed fraud by declaring her innocence. A prosecutor who would bring such a ridiculous charge obviously had no case whatsoever.
It appears the jury convicted Steward largely on the basis that she was white and successful. In their public statements, it is apparent that some of the jurors have the impression that Stewart is part of the corporate fraud that is believed to have caused widespread losses to shareholders who are "little people."
By failing to recognize the political persecution in front of their noses, the Stewart jury demonstrated the extreme risks of a jury trial. The prosecutors only wanted a symbolic scalp and had offered Stewart a plea bargain deal — a probation sentence in exchange for a plea that she made a false statement. Stewart, who has navely declared her belief in the integrity of the justice system, went to trial instead.
Stewart’s conviction has made it even less likely that an innocent defendant will place trust in a jury. Already 95% of felony cases are settled with a coerced plea bargain, because judges and juries routinely fail in their function of protecting defendants from prosecutorial abuse. Time after time, innocent defendants are convicted on fabricated evidence while exculpatory evidence is withheld. Based on the new DNA evidence, a large percentage of convicted murderers and rapists has been found innocent.
Stewart’s conviction is a defeat for justice and the American way. Prosecutors have undermined the socio-economic system by sending the Marxist message that Americans become successful and rich by evading the rules and engaging in criminal behavior.
Some message for a conservative Republican administration to send.
Dr. Roberts [send him mail] is John M. Olin Fellow at the Institute for Political Economy, Senior Research Fellow at the Hoover Institution, Stanford University, and Research Fellow at the Independent Institute. He is a former associate editor of the Wall Street Journal and a former assistant secretary of the U.S. Treasury. He is the co-author of The Tyranny of Good Intentions.