Martha Stewart Is Innocent

by Kelly G. Black
by Kelly G. Black

You have probably heard the news that Martha Stewart was found guilty yesterday on all counts. True, but deceptive.

Remember the big lie for which she was prosecuted? The press remembers:

Stewart and Bacanovic claimed they had a standing agreement to sell when the price fell below $60. But the government contended that was a phony cover story and that Stewart sold because she was tipped by her broker that ImClone CEO Sam Waksal was frantically trying to dump his own holdings.

The natural assumption is that, since she was found guilty of "all counts," the jury believed that the $60 agreement was "a phony cover story." The press quotes the prosecutor’s closing argument on this point:

In closing arguments, prosecutor Michael Schachter said the story about the arrangement to sell ImClone at $60 was "phony," "silly" and "simply an after-the-fact cover story."

That is the one thing that the jury did not find her guilty of doing. The government lost its central claim. The press has not picked up on this, and probably never will.

Take a look at the jury verdict on The Smoking Gun. You will note that counts three and eight identify – by number only – multiple "specifications" of false statements which Martha Stewart was claimed to have made. Both counts contain one false statement ("specification") which the jury did not find her guilty of making. To find out what those specifications were, you then have to compare them to the indictment, also available on The Smoking Gun:

Specification One of Count Three alleged: "STEWART falsely stated that in a conversation that had occurred at a time when ImClone was trading at $74 per share, STEWART and BACONOVIC decided that STEWART would sell her shares when ImClone started trading at $60 per share."

Jury verdict? Not guilty.

Specification Two of Count Four alleged: "STEWART falsely stated that in a conversation that occurred sometime in November or December 2001, after she sold all of her ImClone shares from the Martha Stewart Defined Pension Fund, STEWART and BACONOVIC decided that STEWART would sell her shares when ImClone started trading at $60 per share."

Jury verdict? Not guilty.

Simply stated, Martha Stewart was not found guilty of inventing the $60 agreement as a phony cover story.

So what did the jury find her guilty of doing? Essentially, she was found guilty of lying, conspiring to lie, and obstructing justice by lying that she was told "remember our $60 per share agreement? – it’s time to sell" instead of "Waksal’s selling – it’s time to sell."

Now sit back and think hard: Who was hurt by this lie?

Here’s what one juror thought:

"Maybe it's a victory for the little guys who lose money in the market because of these kinds of transactions," said juror Chappell Hartridge, of the Bronx.

The juror is wrong. The "little guy" could have lost no money because Martha Stewart would have been within her rights to sell when her broker told her of Waksal’s selling. And if the broker had done what Stewart said he did – reminded her of the $60 agreement – she presumably would have sold anyway. The lie was immaterial.

Here’s what the prosecutor thought:

U.S. Attorney David Kelley said Friday that all Americans were victims of Stewart and Bacanovic's crimes because lies to investigators weaken the nation's law enforcement system.

I will not argue with the proposition that the law enforcement system is weakened by lies. But when the chief law enforcement officer of the country is neither prosecuted nor removed from office for a material lie about one non-crime, it seems quite out of proportion prosecute a private person for an immaterial lie about a different non-crime.

March 6, 2004

Kelly Black [send him mail] practices law in Mesa, Arizona.

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