Martha Stewart: The Witch Hunt is On

Posted on June 5, 2003

Well, they really did it. After an 18 month investigation, the Justice Department filed an indictment against Martha Stewart, founder of Martha Stewart Omnimedia. The 41-page indictment can be found at The Smoking Gun website. (The SEC has also filed a related civil suit.) For those who have the stomach for it, a perusal of this document reveals a host of intriguing information, the most glaring of which is that the government has no case against Ms. Stewart for insider trading. Yes, that's right, they didn't even charge her with insider trading -- presumably, because they don't have enough evidence to go to trial. Instead of charging Ms. Stewart with the underlying crime, they have elected to charge her only with the legal "extras" that normally are tacked on to the underlying crime: securities fraud, conspiracy and obstruction of justice.

In fact, the last charge is something you just never see in this type of case. The government alleges that when Ms. Stewart went on television and was quoted in the newspapers as saying she was innocent of all charges, she was committing fraud with the intent to pump up the stock price of Martha Stewart Omnimedia. Excuse me? You've got to be kidding me. You're charged with a crime, and when you assert your innocence, that somehow amounts to stock manipulation, fraud and conspiracy? Top legal experts around the country have admitted puzzlement at that bizarre interpretation of the law.

The other interesting tidbit that shows up in the indictment is the fact that there is physical evidence supporting Ms. Stewart's case. Apparently, Merrill Lynch turned over to the SEC Peter Bacanovic's worksheet which listed all of Ms. Stewart's stock holdings. Next to ImClone is a notation in blue ink which says "@60." Hmm...so, he did note to sell the stock if it dropped below $60/share. But the government says that scientific testing shows that this notation was written with a different pen. That's their whole case? That he used a different pen to note the stop loss order? Why I myself personally have at least ten different pens in my penholder on my desk. And I am liable to switch between them during they day. Is that a crime now? As far as I can see, this proves that Bacanovic used a different pen to make the note. Apparently, the vast resources of the U.S. government cannot determine exactly when that notation was made (carbon dating not being precise enough to nail down the exact day someone used a pen). Therefore, the fact that he changed pens is supposed to prove that he doctored the worksheet after the fact. If that's not circumstantial evidence, then I don't know what is. Stewart and Bacanovic both deny any wrongdoing.

Which brings me to the next issue. How much did this investigation cost the American taxpayers? Martha Stewart is not, and never has been an insider of ImClone Systems, Inc. She didn't cause thousands of people to lose their jobs and their pensions, as did Ken Lay and the other crooks who ran Enron, Global Crossing, Tyco and Worldcom. She avoided a personal $45,000 loss by selling ImClone stock the day before bad news became public which would adversely affect the stock price. Yet the indictments have been few and far between for these other notorious criminals -- Lou Dobbs of CNN's Moneyline is the only media personality taking the government to task for its lackadaisical prosecution of these, much more egregious, crimes.

And the stockholders of Martha Stewart Omnimedia have definitely suffered from this investigation; the stock price has dropped from $19.00 to around $10.00 because of this witch hunt. Why not go after the guys that have really hurt American citizens with their blatant disregard for the welfare of their employees and shareholders?

In the end, Ms. Stewart is a successful, intelligent woman who created a media empire -- all by herself without a man to help her. And that may turn out to be the biggest crime of all.