Prosecuting Martha

Martha STewart indictment federal case trial charges court gavel
Attorney Andrew Cohen analyzes legal issues for

When federal prosecutors say the case against Martha Stewart and her stockbroker is a case "about lying," they are saying two other things as well. They are saying that they need from the outset to frame the case in its simplest terms in order to ultimately convince jurors that the defendants ought to be punished for what they allegedly did. And they are saying that the Watergate-era adage is alive and well in the Age of Enron: it's not necessarily the crime, it's the cover-up.

The indictment we all were waiting for now is here. It addresses the infamous trade itself but emphasizes actions that Stewart and Peter Bacanovic took later, after the trade, once they knew that they were under investigation. It says that Stewart and Bacanovic spoke and acted dishonestly when approached by federal regulators. It alleges that Stewart engaged in securities fraud not in connection with the infamous ImClone trade, but in the way she publicly spun the news of the investigation and how that spin inappropriately affected her own corporation, Martha Stewart Living Omnimedia. It's an indictment notable almost as much for what it does not allege as for what it does allege.

The indictment itself, and the way it was portrayed by federal prosecutors Wednesday, strongly suggest that the Stewart trial, if there ever is one, will hardly be a complex securities-law-driven affair. Instead, we were told by U.S. Attorney James Comey, the case will focus upon "lying." This is no accident. The Clinton impeachment scandal educated a lot of potential jurors about what obstruction of justice and perjury and false statements mean and ought to mean. And, in part because of this unsolicited education about process-oriented crimes, prosecutors know that it would probably be a lot easier to walk into court and prove that Stewart is a liar instead of trying to prove that she is a thief.

By emphasizing the cover-up, then, and de-emphasizing the trade, the feds are keeping their storyline clear and simple and easy to follow; a case of black and white in an area of the law -- securities -- that's often quite gray. Also fitting into this theme is the government's potential reliance upon the "underlings" of this saga. Bacanovic's assistant, Douglas Faneuil, a named but unindicted co-conspirator who pleaded guilty to a misdemeanor a while back, and Stewart's assistant, Ann E. Armstrong, may both play a vital role for prosecutors. Everyone who has a job, or who has ever had a job, can relate to a story about a worker fighting under oath in court against his or her boss. The feds know that keeping things simple will increase their odds at trial, and at the same time keep political and public relations pressure on a defendant, Stewart, who desparately needs good press.

The Justice Department made another strategic and tactical decision that fits the plan when it chose to forego charging Stewart and Bacanovic with insider trading in the criminal complaint. Federal prosecutors left it to their cousins in government at the Securities and Exchange Commission to bring the tricky insider-trading allegations in the regulatory complaint that will ride shotgun to the criminal case. By handing off the most complex charge to the SEC, prosecutors were able to say, as they did Wednesday with great solemnity, that they are trying hard to be fair to Stewart even as they turn the screws on her.

That spin, too, is an integral part of the government's case. The feds know that a lot of people are asking -- while former Enron executive Kenny "Boy" Lay is off scot-free in some mansion somewhere -- why Stewart is the one being made an example of. And so the notion of "fairness" -- the perception that the feds are simply going by the book and not selectively prosecuting a symbol of American wealth -- is a vitally important concept for the government to reiterate from now until trial. Remember, if anyone or anything could make Martha Stewart appear sympathetic, it's got to be the federal government.

That explains why prosecutor Comey made a point of saying that "Martha Stewart is being prosecuted not because of who she is but because of what she did." Everyone knows that, in fact, the opposite is true; that the federal government would never have prosecuted a nameless defendant for saving $47,000 through an allegedly inappropriate stock sale, especially when that defendant was interested in making a deal prior to indictment. But you can't blame Comey for recognizing one of the inherent problems the government is going to face as it proceeds toward trial. And you certainly can't blame him for trying to tackle it head on.

Of course, it's a lot easier to appear magnanimous and talk about fairness as a prosecutor when you know that the SEC is going to pursue the insider-trading claim anyway, enjoying in that civil "parallel proceeding" the enormous benefit of a lowest burden of proof available. And it's a lot more difficult to be Martha Stewart today knowing you now have to fend off a criminal case, a civil action by regulators and the looming prospect of class-action lawsuits by your own shareholders, who you just know are watching this curious case with great interest and, of course, no small amount of style.