- We live in a topsy-turvy world. People may ask politicians
to give them some of the loot taken from the taxpayers - and no one is
even suspected of wrongdoing. Yet if someone's stock sale piques the curiosity
of government investigators armed with vague legal concepts such as insider
trading and obstruction of justice - watch out.
-
- As the whole world knows by now, Martha Stewart was found
guilty of conspiracy, obstruction of justice, and making false statements
to the government in connection with the sale of her ImClone Systems stock.
She says she sold the stock because the price went below $60, as previously
arranged with her then-Merrill Lynch stockbroker and co-defendant Peter
Bacanovic. The government says she sold it because she was illegitimately
tipped off that ImClone CEO and
- friend Samuel Waksal was unloading his stock. (He was
selling because he had learned before the public did that the Food and
Drug Administration would reject his application for the cancer drug Erbitux.
The government never alleged that Stewart knew about the FDA decision.
Most ironically, the FDA has now approved Erbitux.)
-
- Two points, woefully overlooked in the hours of cable-television
commentary, need to be made. First, there are absolutely no grounds for
putting the Stewart case in the category of "corporate crime,"
as epitomized by Enron, WorldCom, and Tyco. The allegations in those cases
relate to corporate officers' stealing and hiding material facts from shareholders.
Martha Stewart's actions, even examined in the worst light, are nothing
like the actions in those cases. The worst that can be said of Stewart
is that she lied, while not under oath, to investigators about her reasons
for selling the shares from her personal portfolio. But this has to be
kept in its larger context. Why was the government asking? Because they
were looking for a case of insider trading. The rules are purposely vague
in this area because enforcers like the flexibility of nonobjective law.
This is improper in a society that prides itself on the rule of law, because
nonobjective law makes it impossible for anyone to know in advance whether
his actions are illegal.
-
- Given this vagueness, one can understand why Stewart
would be reluctant to admit (if indeed she lied) that she sold after learning
that Waksal was selling. But even if that was her reason, that should not
be a crime or an object of government interest. Martha Stewart was not
an ImClone insider; she owed no contractual duty to the company or its
shareholders. That she came into possession of information that other shareholders
and potential shareholders did not have cannot change that fact. Under
rational securities law, Stewart would not have had to fear that the government
suspected her of trading on nonpublic information. This doesn't mean that
Waksal and Bacanovic did no wrong. Both may have committed civil offenses
against ImClone shareholders and Merrill Lynch clients, respectively. The
civil courts are the place to redress such grievances. But Stewart wronged
no one - there were no victims.
-
- This brings up the second point that nearly everyone
has missed. As Kelly G. Black, a lawyer from Mesa, Arizona, noticed, the
jury apparently did not believe the government's charge that Stewart's
"sell at $60" agreement was concocted as a cover-up. In the bill
of indictment, each of the two counts of making false statements listed
several alleged lies. The jury was instructed to check off which statements
it found false. What has gone unreported is that the jury left unchecked
the statements relating to the agreement to sell at $60. In other words,
the jury did not believe the government on this matter. To drive home this
point, the jury acquitted Bacanovic of making false documents by altering
a worksheet after the fact to indicate an order to sell at $60.
-
- The upshot is the government did not prove beyond a reasonable
doubt that Stewart lied when she said she had decided weeks before the
sale that she wanted the shares sold when the price fell to $60.
-
- It may well be that Stewart learned that Waksal was selling
and that this reinforced her plan to sell. But it also seems to be the
case that she would have sold the shares anyway.
-
- Sheldon Richman is senior fellow at The Future of Freedom
Foundation, author of Tethered Citizens: Time to Repeal the Welfare State,
and editor of <http://www.fee.org/vnews.php?sec=iolmisc>The Freeman
magazine.
- http://www.fff.org/comment/com0403f.asp
|
