- The Washington Times - Wednesday, March 10, 2004

I’m anything but a fan of Martha Stewart. And the idea of her stuck in a cage making baskets of potpourri for the next two years is not at all unappealing. She lost all my respect after her first indictment, when she said her adversaries were part of a vast right-wing conspiracy against her.

Something tells me the 12 men and women of the jury who convicted her of four felonies were not right-wingers getting back at her for her left-wing policy positions.

Nonetheless, Stewart’s felony conviction last Friday was a miscarriage of justice. There can be little doubt she is being hung out to dry much more for her celebrity and wealth than for her transgressions, which were de minimus. She is in many ways a victim of the witch hunt against corporate excess and accounting scandals, which is all the rage on the left these days.

Throughout this trial, what seemed to be forgotten was that Stewart’s original crime, an alleged insider trading deal with IM Clone stock, can hardly be considered a crime at all. (I know Stewart was convicted for lying to federal investigators, but the “lying” and obstruction of justice charges were all related to this one stock sale 24 hours before the market.)

Libertarians have long argued insider trading should not be a crime, because (1) there is no victim and (2) because everyone who makes money in the financial markets engages in some degree of insider trading — some just have better information than others. Being a good stock picker involves having more information, and knowing how to get it faster than other traders. What is the difference really between a hot stock tip, and insider trading? The line is so murky it makes enforcement of insider trading laws inconsistent and capricious.

Now advocates of insider trading laws probably are irate about my proposition to legalize insider trading, because insider trading “hurts the mom and pop investor.” They also say we need to enforce this law to maintain the integrity and the public confidence of the financial markets. Baloney.

The market fell, it didn’t rise, on the news of Martha Stewart’s conviction. If investors believe the Securities and Exchange Commission can throw you in jail for making trades construable by a federal prosecutor as based on “insider information,” it has a chilling effect on the financial markets and all stocks are hurt. That means all investors are also hurt.

I’m in favor of repealing insider trader laws and replacing them with a new “let the investor beware” rule in publicly traded companies. My colleague from the Cato Institute, Doug Bandow, has written persuasively on this topic for years, and I would recommend his unassailable logic.

Why not let those who have access to insider information trade on it? Let companies have bylaws in their charters to deal with selling on insider information. Repealing insider trading laws will simply lead to information spreading faster and more efficiently throughout Wall Street.

It is believed by many policymakers that after the market collapse in 2000 and the corporate scandals at WorldCom and Enron we need more SEC cops on the beat, tighter government regulations, and an off-with-their heads penalty regime. This too, through the passage of the Sarbanes-Oxley law, was supposed to restore serenity to the financial markets. But the financial markets hated the new law, and stocks fell in its wake.

If only Uncle Sam would stop protecting the “average Joe” investor, Joe might be able to start making some real money in stocks.

The Stewart convictions should leave a bitter aftertaste in conservatives’ mouths for another reason. Stewart, it appears, was a victim of class warfare, which has filtered down from the brainless, demagogic left-wing politicians, now even to juries of our peers. One juror commented gleefully that this conviction was justified in part because it would send a message to the “rich and powerful” that they can’t get away with such abuses. But was Martha’s real crime here the illegal stock transaction, or her hoards of wealth estimated before all this started at between $500 million and $1 billion?

The press also delighted in playing the “class warfare card” by skewering Martha Stewart for such transgressions as wearing expensive jewelry during the trial. She has become the first Leona Helmsley of the 21st century. You would have thought she had said “only poor people pay taxes.”

Mrs. Stewart now faces perhaps two years in prison and liquidation of at least half of her wealth (again in the hundreds of millions of dollars), because she saved herself $50,000 selling ImClone stock when she heard one of the drugs the firm was developing failed to get Food and Drug Administration approval. That was her crime and why she will do time.

Love her or hate her, Martha Stewart has been one of the most successful capitalists of this generation. She created hundreds of millions of dollars of new wealth and virtually a new industry that was in effect herself. She created thousands of jobs and was a successful entrepreneur, who happened to make a lot of money while she was at it.

My uneasiness is that many in our society applaud her downfall precisely because of her enormous success. But success is a virtue in America and when we start treating it as vice, we denigrate our capitalistic system and we have a much bigger problem in our society than whether people are trading on hot stock tips in the middle of the night.

Stephen Moore is president of the Club for Growth.

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