There is a widespread belief that Martha Stewart received inside information from her friend Waksal and conspired with her broker to make use of that information by selling her shares before the bad news was made public.
If indeed there is enough substance to this to produce a case against Martha Stewart she should be tried for this. If guilty she should face the consequences.
In an interesting twist this is not what she is being formally accused of. Apparently there is not enough evidence to make a case in this fashion.
Instead, Martha is in hot water for her actions after the allegations of trading on inside information became public.
She is standing accused of obstructing justice and manipulating th markets. This accusation stems almost solely from the fact that she publically protested her innocence.
As the head of a publically traded company it is being argued that her protestations of innocence served to prop up her ownership in Martha Stewart Omnimedia of which she was Chairwoman, CEO and large stockholder.
By saying she was innocent publically she supposedly kept the stock price inflated. Her public defense of herself served as an obstruction of justice. It has also been suggested that she has been less than forthright in dealing with investigators, but to my ears these claims of obstruction largely amount to her not immediately producing evidence which proves her guilt.
These tactics seem to mirror those used by Eliot Spitzer in his case against Merrill Lynch.
Merrill was basically denied the right to defend itself and forced to settle with Spitzer because the Martin Act was held over Merril Lynch’s head.
To those not familiar, the Martin Act is a peculiarity within New York law that enables a person in Spitzer’s position the ability to unilaterally shut down a company’s operations in the state of New York under nothing more than the suspicion of wrongdoing. The Martin Act was conceived as a weapon against racketeering.
The Martin Act would have been calamitous against Merrill Lynch since virtually all of it’s activities are routed through New York and its exchanges. It’s usage would have shut down and possibly bankrupted the corporation.
The activities related to Merrill Lynch’s research, Henry Blodgett and Investment banking may or may not have merit from a legal standpoint. It appears at the very least that Merrill Lynch did fail in its responsibility to supervise activities and maintain the “Chinese Wall” that is supposed to exist between Research and Investment Banking.
Merrill Lynch was not indicted on these grounds. According to a recent Forbes article, Merrill Lynch took out a one page ad in the New York Times to defend itself and explain it’s position to the public.
Spitzer allegedly told Merrill Lynch in the article that if they spoke to the media or issued a public statement again regarding the investigation he would initiate the Martin Act and shut them down.
I make no arguments as to whether either Martha or Merrill Lynch are guility of wrongdoing. I don’t know. That is not the issue up for debate.
The issue up for debate is what appears to be clear gestapo tactics by the use of regulators in high profile cases whereby those accused are punished or threatened for doing nothing more than attempting to publically defend themselves from allegations that have been publically levelled at them.
I do not feel that a defendant in such a circumstance should be expected to be gagged, and I think that justice is served when both sides of alleged wrongdoing can be publically heard.
Because of this I think the case against Martha Stewart is a sham, and the regulators in question are abusing their position as custodians of the public trust to create a self-benefitting media event.
Waksal on the other hand appears to be guilty as hell and has been tried and punished accordingly.