- The Washington Times - Saturday, September 18, 2004

Don’t you feel much safer now, with Martha Stewart about to go to prison? She decided to go to prison first and appeal later. That makes good business sense, so her company stock went up. But this whole trial and error makes no sense at all, so justice went down.

In late April, economist Thomas Sowell wrote about the Stewart case, questioning (as economists do) the rationale for making insider trading a crime. Mr. Sowell is an extraordinarily perceptive scholar. Yet he, too — like Martha Stewart’s relatively uneducated jury — totally misunderstood of what crimes she was accused. “Perjury should of course be a crime,” wrote Mr. Sowell. “But insider trading is something else.” Yet Martha Stewart was not charged with perjury or insider trading.

Journalists never tired of misinforming us Mrs. Stewart was guilty of insider trading. On the evening of her verdict, a public radio show opened with David Brown saying, “It’s rare that a case involving insider trading attracts such attention.” A year before, a New York Times editorial claimed Mrs. Stewart “was tipped by insiders that the Food and Drug Administration was not going to approve” ImClone’s anti-cancer drug Erbitux. They might as well have said she was accused of murder — that is no less false.

If all these professionals imagined Mrs. Stewart was accused of insider trading, what was some ordinary juror to think? Chappelle Hartridge told reporters the jury felt Mrs. Stewart’s background as a stockbroker meant “she should have known her moves were illegal.” What he could not possibly know was that her stock sale was not illegal.

Judge Cederbaum prohibited Mrs. Stewart’s defense from even mentioning that her sale of ImClone stock was 100 percent legal. That is why she should win on appeal. But she has been riding a powerful railroad, and it’s hard to stop.

You might hope the Stewart case would at least be understood by Andrew C. McCarthy, former chief federal prosecutor from the Southern District of New York (where the Stewart case was filed) and now a contributor to National Review online. Sure, prosecutors are a self-protective club. But enough is enough.

In mid-July, Mr. McCarthy wrote “Martha Stewart engaged in financial shenanigans that were arguably criminal and incontestably sleazy.” But sleazy is not a crime, and calling her stock sale “arguably criminal” was fatuous.

Mr. McCarthy says, “Lying to police is always serious business.” But lying to police is not a crime unless it is under oath (perjury). Besides, accusations Mrs. Stewart lied originated with congressional staffers, not police.

The Stewart trial pivoted on a June 12, 2002, letter from her attorney, James F. Fitzpatrick, which first raised a totally irrelevant point about some “understanding… to sell below $60 per share.” I believe there was such an informal understanding (the only kind her brokerage allowed for Nasdaq stock). But there was no reason for Mrs. Stewart’s lawyer to offer any reason for the sale. ImClone had fallen from $70 on Dec. 14 (when short sales of ImClone hit 77 million shares) to $58 by the time Mrs. Stewart sold. You didn’t need insider information to sell before Mrs. Stewart did — you just needed to watch CNBC. But the decision to send the Justice Department after Mrs. Stewart began even before Mr. Fitzpatrick offered that superfluous explanation.

Mr. McCarthy pretends Mrs. Stewart’s true statement — that she received no tip from ImClone founder Sam Waksal — somehow obstructed justice in Mr. Waksal’s prosecution. He writes that since “Waksal’s financial fraud was worth probing, there can be no serious doubt that making false statements to the investigators should have been treated as a felony.”

The Feds’ first assault on Martha Stewart was launched June 6, 2002 — the day she became a director of the New York Stock Exchange (these fellows play rough). That was six days before Sam Waksal was even charged. First things first. How much political publicity can congressmen expect from a guy in a suit?

The endless smear campaign against Mrs. Stewart began with press leaks from the powerful House Energy and Commerce committee, chaired by Rep. Billy Tauzin, Louisiana Republican. Rep. Jim Greenwood, Pennsylvania Republican, directed the subcommittee “investigating” (which means hoping to get press coverage and C-SPAN) these trivial side-effects of the FDA’s homicidal refusal to approve ImClone’s lifesaving drug.

This carefully planted story was designed to ensure the headlines would read “Martha Stewart’s insider trading scandal.” Sure enough, Mr. Waksal was merely a sideshow. Nameless sources “close to the investigation” insinuated Mrs. Stewart sold ImClone shares because of a tip from Mr. Waksal, supposedly an ex-lover.

For hungry reporters, it just doesn’t get much better than that. The Associated Press version said, “There are allegations that certain people profited handsomely, although illegally, from ImClone stock…. A source close to the investigation said, on condition of anonymity [that] legal documents given to the committee show that domestic doyenne Martha Stewart also shed 3,000 ImClone shares. Stewart and Waksal have been romantically linked in the past.”

The anchor of Minnesota Public Radio, Cheryl Glaser, whispered: “It looks like Martha Stewart may have kissed and sold. The doyenne of domesticity has been romantically linked to a man who until two weeks ago was the CEO of a biotech firm named ImClone…. That’s prompted whispers about insider trading.”

The whole story was a total fraud, including the romantic twist (Mr. Waksal once dated Mrs. Stewart’s daughter, not Martha).

Mr. Waksal did not tip Mrs. Stewart. Yet this sleazy political lie nonetheless cut in half the stock price of Mrs. Stewart’s company, confiscating half of her wealth without even a trial.

Andrew McCarthy nonetheless insists all is well, because Mrs. Stewart “had a choice, she did not have to speak with the agents. … That’s the power of the Fifth Amendment.” Oh really?

On Sept. 10, 2002, Messrs. Tauzin and Greenwood wrote to Attorney General John Ashcroft suggesting Martha Stewart be prosecuted for daring to invoke the Fifth Amendment: “We are writing to request that the Department of Justice investigate whether Ms. Martha Stewart, chief executive officer of Martha Stewart Living Omnimedia, knowingly caused materially false representations to be made to the U.S. House of Representatives Committee on Energy and Commerce (Committee) in violation of 18 U.S.C. 1001…. Under 18 U.S.C. 1001, it is a federal felony for anyone to knowingly and willfully make any materially false statement, or to falsify or conceal a material fact, in connection with ‘any investigation or review, conducted pursuant to the authority of any committee, subcommittee, commission or office of the Congress….’ Because Ms. Stewart repeatedly has refused to be interviewed by committee staff — and her attorneys have stated that she would invoke her Fifth Amendment right not to testify if subpoenaed to a committee hearing — the committee has been prevented from attempting to resolve many of the discrepancies, ambiguities and suspicious communications outlined in this letter.”

That letter, signed by Mr. Tauzin, Mr. Greenwood, and Democrats John Dingell of Michigan and Peter Deutsch of Florida, argues this treacherous federal law makes it a felony to simply “conceal a material fact” to committee staff. It urges that Martha Stewart be prosecuted under this heinous law because she “refused to be interviewed” and “stated she would invoke her Fifth Amendment right.”

Yet Mr. McCarthy thinks “justice was done” simply because Martha Stewart did not have to speak with the witch-hunting congressional staff and she had the right to invoke the Fifth Amendment. She tried that, and look where it got her.

Putting people in jail is serious business, or at least it should be. Even former prosecutors must realize unbridled prosecutorial zeal can be a fearsome threat to liberty, particularly if it appears to have been abused to placate powerful politicians.

Alan Reynolds is a senior fellow with the Cato Institute and a nationally syndicated columnist.

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