Thursday, March 17, 2005
It looks like Martha Stewart may not be paying the entire cost of the legal problems that she faced. Check out the CNN story here.
When someone in corporate America is under investigation, under indictment, or just appearing as a witness before a grand jury, it isn't always the case that they are footing their own legal bill. As a matter of fact, it often is the situation that the company bears the cost. This in part comes about because of the contractual arrangement that the individual may have made with the company. In some cases, a directors and officer's liability policy may place the cost with insurance.
And yes, the oral argument on Martha Stewart's appeal was today. As expected, it looks like the Crawford issue was at the top of the hour. See here.
Wednesday, March 9, 2005
It looks like the government has not stopped with Martha Stewart and Peter Bacanovic when it comes to indictments related to ImClone. CNN reports here how two individuals have been indicted on securities fraud and conspiracy to commit securities fraud for allegedly selling some ImClone stock after receiving a tip from Waksal. The criminal complaint can be found here. The SEC also brought a civil action pertaining to this matter. According to the SEC Complaint, discussions were had in 9 telephone calls between the hours of 5:59 A.M. and 9:08 A.M. on December 27, 2001.
Monday, March 7, 2005
Along the lines of a previous post (here) about Charles Colson's thoughts on the effect of prison on Martha Stewart, an AP story (here) quotes co-editor Ellen Podgor along with a few former white collar crime miscreants on the effect the term of imprisonment had on Stewart -- not that Ellen is a miscreant. (ph)
Sunday, March 6, 2005
Chuck Colson, who spent seven months in prison as part of the Watergate prosecutions, writes a thoughtful op ed piece in the New York Times here. He describes his experiences in prison, and what he has done to improve our prison system since being released. He speaks about Martha Stewart. But one passage in his op ed may not ring true for the Martha Stewart case. That is, "[t]here was the shame of walking down the street knowing that the people who saw me knew I was an ex-con." Will Martha Stewart feel shame? Or does Martha Stewart emerge from prison as the hero?
Saturday, March 5, 2005
With Martha Stewart's release from prison yesterday, her company's stock (Martha Stewart Living Omnimedia [MSO]) took a nearly 10% fall in price, and for the week is down almost $7 per share. For those keeping score, yesterday's fall cost Stewart approximately $90 million, although that is not real money in the sense that she could not simply sell all her shares at the market price, even if she wanted. Much has been made about what her case "means" in America, and I don't think it means much. Her face appears on the cover of Newsweek in a composite photograph that apparently fooled some into thinking it was real -- does anyone really think that a photo shoot would be allowed in Federal Correctional Institution? Do the changes in the value of Stewart's company, and the effect on her net worth, mean anything about the criminal justice system or the effect of punishment? No. Stewart's conviction had nothing to do with MSO directly, and to the extent anyone tries to draw a lesson about the state of corporate America from a criminal case, the prosecutions of Bernie Ebbers, Richard Scrushy, and the senior Enron executives will tell you more -- although not much more, I think. Is the fact that Stewart seems to be unrepentant worth considering? Perhaps, but she served her term of imprisonment (for a conviction that could still be reversed), and how she views herself and her conduct does not change the fact that lying is still wrong, a point that I doubt she would dispute. (ph)
Friday, March 4, 2005
Martha Stewart was released from prison and now faces 5 months of home confinement. Why are so many newspapers making her a "front-pager" this a.m.? See here (Atlanta Jrl Const.), here (New York Times), here (LA Times), here (USA Today), here (Washington Post). And even those that didn't make her a top story had notes on the front page with a jump to the article. See here (Detroit Free Press). When it comes to general deterrence, who won this round of the case?
Thursday, March 3, 2005
With the upcoming release of Martha Stewart from prison, the press is writing of her experiences and future. The Wall Street Journal provides a view of her life in prison here, AP here, and there have been many a story on her upcoming TV show. (see e.g. here). Also see our post here.
But I keep wondering about what is happening in the background, namely, Martha Stewart's appeal. Normally, the appeal would be crucial - a chance to vindicate oneself. The brief filed by the government and the defense here and here demonstrates some fascinating legal issues, including a Crawford issue. But what if Martha wins the appeal?
Normally when the defendant wins the appeal, it can mean not going to prison. But Martha Stewart has already done her time. If the result is an out and out reversal then yes, it is clearly beneficial to vindicate her. But what if the result is a retrial? Will this assist Martha Stewart in going on with her life? Or will it keep her from putting the focus on the new TV show and her new life? Would she be better off with it being affirmed?
No one wants a conviction on their record, but this case is challenging a basic premise in our system of justice. Does a conviction really matter? Will it be a deterrence? And more importantly, should the government have prosecuted Martha Stewart? Irrespective of where you stand on the guilt or innocence of Martha Stewart, one has to ask themselves if this was an appropriate case for the federal government to prosecute? Should this case have been handled through civil remedies?
Monday, February 28, 2005
The cover of the March 7 issue of Newsweek features a smiling Martha Stewart and the headline "Martha's Last Laugh" (here). The magazine is reporting that Stewart's attorneys (she continues to reside in an FCI in West Virginia for the rest of the week) are negotiating a settlement with the SEC regarding the civil insider trading charges related to her sale of ImClone Systems stock based on information she allegedly received from her broker, Peter Bacanovic, and indirectly from former ImClone CEO Sam Waksal (who is also residing in an FCI, for quite a bit longer). If she settles the case, it will likely involve a bar for at least some period of time from serving as a director and officer of the company, Martha Stewart Living Omnimedia, in addition to disgorgement of the loss avoided and a civil money penalty. The dollar figures are minute -- at least for Stewart -- because the disgorgement and penalty are unlikely to be more than $250,000 (including interest and assuming a 3x penalty, which is probably on the high side), and Stewart owns 30 million shares of the company, with a current market value of over $1 billion. Put another way, any monetary payment will be less than .025% of the value of her stock holdings in her company, so the key is what can be negotiated regarding the D&O bar. The case was never really about the money, as both sides would likely concede. (ph)
An article in the New York Times (Feb. 27) discusses Martha Stewart's imminent return to her company, Martha Stewart Living Omnimedia, upon completion of her five-month term of imprisonment. Stewart is scheduled to return to her office on March 7. Her sentence includes five months of home confinement, and the terms of that portion of her sentence permit her to work at the company, where plans are in the works for a new daily program and an "Apprentice" show similar to the one starring Donald Trump. A graphic with the NY Times story notes that the strong rise of her company's stock price since the sentencing last July means that Stewart's share have nearly quadrupled and are now worth a billion dollars. That may be a first in American penal history, and you wonder whether this will be a situation similar to the Wall Street adage of "buy on the rumor, sell on the news." (ph)
Wednesday, February 9, 2005
Martha Stewart's sale of ImClone Systems stock has spawned a cottage industry of cases beyond the criminal prosecution (and now appeal), including the SEC's civil action alleging insider trading and a shareholder lawsuit against her company, Martha Stewart Living Omnimedia, alleging violations of Rule 10b-5 for failing to make proper disclosure about her legal situation. The attorneys for the securities class action plaintiffs, the well-known Milberg Weiss firm, sought to discover otherwise privileged communications with Wachtell Lipton, the company's counsel during the period of the SEC/U.S. Attorney investigation into her stock sales in 2002. An article in the New York Times (Feb. 8 here) discusses a ruling by U.S. District Judge John Sprizzo permitting discovery of the communications by the company with Wachtell Lipton but not Stewart's communications with her own lawyers. The ruling appears to follow the shareholder exception to the privilege, which in limited circumstances allows shareholders to gain access to communications with the company's lawyers if there is "good cause" (see the venerable decision in Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970)). Certainly, Stewart's communications with her personal attorney would not be subject to that exception, which is limited to corporate counsel. An interesting question, which is not clear from the article but hinted at, is whether Wachtell Lipton represented both the company and Stewart personally during the government's investigation. If the firm represented Stewart personally, that could create a potential conflict for the firm and, more importantly, a very sticky situation for analyzing whether her communications with corporate counsel were in her personal or corporate capacity. The usual rule is that communications by a corporate officer are made on behalf of the company and only protected by the organization's attorney-client privilege, but personal representation of the officer changes the analysis. (ph)
Monday, January 24, 2005
ImClone Systems Inc. announced on Jan. 24 (company release here) that it has reached a settlement in the consolidated securities class action and shareholder derivative suit regarding the company's disclosure of information about negative FDA action on a drug application. The timing and completeness of the disclosure was at the heart of the insider trading case against former CEO Sam Waksal, who entered a guilty plea related to his stock transactions the resulted in a seven-year prison term and a recent settlement of the SEC civil action in which he agreed to pay a $3 million civil penalty in addition to disgorgement and prejudgment interest (post here).
According to the ImClone release, the company will make a cash payment of $75 million to a settlement fund, of which $8.75 million will come from insurers. ImClone's release states, "The claims against all defendants would be dismissed with prejudice but the Company would retain the right to continue to pursue certain claims against its former chief executive officer, Samuel D. Waksal." The latter point is important because Waksal still has substantial assets, and the company will pursue its claims against him for breaching his fiduciary to the the company as an officer and director. Waksal's woes are not yet over. (ph).
Thursday, January 20, 2005
CNN (Reuters) reports that "[f]ormer ImClone Systems CEO Sam Waksal has agreed to pay a $3 million civil penalty to settle charges over the insider trading case that also involved lifestyle entrepreneur Martha Stewart." The SEC Release in the case states that "[p]ursuant to this settlement, which is subject to the Court's approval, Sam Waksal and Jack Waksal will be held jointly and severally liable for disgorgement of over $2 million in illegal loss avoidance, including prejudgment interest, and Sam Waksal will be liable for a civil penalty of over $3 million. The SEC Release also states that Sam Waksal's consent "to the entry of a final judgment against him" was made "[w]ithout admitting or denying the allegations."
In the meantime, the NYTimes reports that "[s]ince Ms. Stewart's conviction, her company's share price has nearly tripled, increasing the value of her personal stake to an estimated $827 million from $318 million"
Saturday, January 1, 2005
2005 may be another year with white collar issues in the news. CNN notes some of what to expect in 2005 in an article titled, "The Return of the $6,000 Shower Curtain." Some of the things they include, as well as others to expect this year are:
1. First up is the trial of Richard Scrushy that starts in early January.
2. Oral argument in Martha Stewart's case, and perhaps a decision from the Second Circuit. Martha Stewart will finish serving her sentence and the question will be what role will she play in helping with reforms for women in prison.
3. The Arthur Andersen LLP. Petition for Certiorari before the Supreme Court will be accepted or denied.
4. "Ex-WorldCom CEO Bernard Ebbers Jr. will face charges in New York federal court. . ." (CNN)
5. "Tyco International honchos Dennis Kozlowski and Mark Swartz are due to answer for the second time [on] criminal changes . . ." (CNN)
6. And yes, maybe some movement on cases involving Enron related individuals, like Ken Lay.
And a lot more. . .
Wishing everyone a happy, healthy, and peaceful new year!
Wednesday, December 29, 2004
The November 3rd post has Martha Stewart's Brief in her Appeal to the Second Circuit Court of Appeals. On December 24 is posted her Reply Brief. Now, at last, a copy of the Government's Brief in the Martha Stewart case. It is a LONG brief - 247 pages to be exact and the argument portion of the brief does not start until page 40. There are nine points - which are outlined below:
POINT I—The District Court’s Evidentiary Rulings Should Be Affirmed
POINT II—The District Court Properly Instructed The Jury
POINT III—The Admission Of Each Defendant’s Statements To Investigators Against The Other Did Not Violate The Confrontation Clause
POINT IV—Bacanovic Was Not Entitled To A Severance
POINT V—Sufficient Evidence Supported The Jury’s Conviction Of Bacanovic On Count Two And The Jury Was Properly Instructed
POINT VI—The Jury Was Properly Instructed On Application Of The Two-Witness Rule
POINT VII—There Were No Grounds For An Evidentiary Hearing Into Alleged Juror Misconduct
POINT VIII—There Is No Reasonable Likelihood That Lawrence Stewart’s Perjury Affected The Judgment Of The Jury
POINT IX—The Potential Effect Of Blakely v. Washington On The Defendants’ Sentences
Tuesday, December 28, 2004
Co-blogger Peter Henning has an op-ed piece in this a.m.'s Hartford Courant titled, "Would You Risk Your Career For Small Change." He states, that "We often see white collar crimes in which prominent individuals risk their livelihood and reputation for seemingly trivial amounts." He points out some of the differences from white collar and street offenders.
Our opinions on Martha Stewart, however, differ. Where Professor Peter Henning states that "she will be forever known as a felon who lied to the government," I say that her appeal is pending, so lets hold on that judgment. And even if the conviction stands, will she be forever known as he describes, or as someone who has accomplished so much for homemakers throughout the world. More importantly, will she become known for being someone who helps with reforms on the incarceration of women? The feds spent a good bit of taxpayer time and money on this prosecution, and the question in the future may be- was it worth it?
Friday, December 24, 2004
Attorneys for Martha Stewart filed a reply brief that includes a strong argument based on the case of Crawford v. Washington, a case in which Justice Scalia, writing for the majority stated, " [w]here testimonial statements are at issue, the only indicium of reliability sufficient to satisfy constitutional demands is the one the Constitution actually prescribes: confrontation." This reply brief argues that the government's use of Peter Bacanovic's testimonial statements violated Martha Stewart's right to confrontation as required by the Crawford decision.
In the initial passages of this portion of the Reply Brief, defense counsel argues that
"in more than 56,000 words, the Government nowhere disputes that:
- Bacanovic's statements were made in a 'testimonial' setting; and
- Were used against Stewart;
- To prove the truth of the matters asserted."
It would not be surprising to see this Crawford argument and the first argument made by defense counsel in their original brief as the key issues at oral argument. The first argument was:
"Whether, after a trial pervaded by allegations that Stewart had committed the uncharged crime of insider trading, the District Court erred by: (1) refusing to instruct the jury that it could not convict Stewart of insider trading and could consider evidence of uncharged conduct only for a limited purpose; and (2) barring Stewart from rebutting the Government’s allegations or explaining to the jury that she had not committed insider trading."
(See also Post of Nov. 3, 2004 which includes Stewart's initial brief.)
In a holiday message, Martha Stewart wishes everyone a happy holiday and also gives us her thoughts on women in prison. She says, "I beseech you all to think about these women -- to encourage the American people to ask for reforms, both in sentencing guidelines, in length of incarceration for nonviolent first-time offenders, and for those involved in drug-taking."
Professor Myrna Reader (Southwestern) has written some wonderful pieces on the issues faced by women in prison. For a primer, check out her Introduction in 16 Criminal Justice Magazine 4 (2001), titled "Female Offenders: An Introduction." It is wonderful to see Martha Stewart joining as an advocate to correct deficiencies in our justice system.
Thursday, December 9, 2004
While Martha Stewart remains incarcerated, the world is continuing outside the prison grounds of "camp cupcake." The latest, according to Reuters, is that Martha Stewart will star in a new TV show upon her release. It sounds from the Wall Street Journal article like the new "cooking and crafts show" has a strong base in that she "will team with reality-show impresario Mark Burnett, creator of such hits as 'Survivor' and 'The Apprentice.'" And yes stock in "Martha Stewart Living Omnimedia, Inc." is up. So not everything that happens while in prison is a negative.
But there can be problems that present themselves to inmates, especially the white collar inmates who have financial and property interests that cannot be managed while they remain incarcerated. This is seen in another recent Reuter's article about Martha Stewart. This one tells the sad story of her missing a property tax payment while she remains incarcerated.
Sometimes the individuals who are penalized the most in white collar cases are the family and friends on the outside who need to handle all the financial and personal issues for the individual who is incarcerated. I always wonder - who is being punished?
Thursday, November 25, 2004
Martha, who CNN notes is ranked as someone people wish to sit next to on a long plane flight (ranked just behind Bill Gates), issued a Thanksgiving message on her website. Included in the message, that thanks all her supporters, she lets us know that she has been informed that her website has " 8 million hits since" she began serving her sentence, not to mention the thousands of emails. If the aim of the government is general deterrence through this prosecution, then one has to wonder if they made the correct prosecutorial choice here.
In the meantime, CNN reports that the government filed yesterday a 220 page response brief in the Second Circuit. The appellate brief filed by her attorneys is located in our November 3, 2004 entry.
Thursday, November 11, 2004
Who Should Pay Martha Stewart's Legal Bills? CCN Money, in an article titled "Martha Asks for Help With Legal Bills," tells how Martha Stewart has filed a claim with her company "for 3.7 million for help with her legal bills. The claims relates to a charge that was dismissed by the court. The charge relates "to her defense of the charge that she made false and misleading statements intended to influence the price of Martha Stewart Living Omnimedia's stock." The company is wise in submitting this to an independent expert for review.
Wednesday, November 3, 2004
Attorneys for Martha Stewart filed the Brief.pdf in the Second Circuit, to appeal her conviction. Four issues are presented:
I. Whether, after a trial pervaded by allegations that Stewart had committed the uncharged crime of insider trading, the District Court erred by: (1) refusing to instruct the jury that it could not convict Stewart of insider trading and could consider evidence of uncharged conduct only for a limited purpose; and (2) barring Stewart from rebutting the Government’s allegations or explaining to the jury that she had not committed insider trading.
II. Whether the Government’s use of out-of-court testimonial statements by Stewart’s co-defendant to discredit a key defense witness and otherwise bolster its case violated the Confrontation Clause.
III. Whether the false testimony of a high-ranking Government official, known to several other Government officials and transparent to prosecutors, requires a new trial (or, at very least, an evidentiary hearing) under the “virtually automatic” reversal rule.
IV. Whether the District Court erred in refusing to convene an evidentiary hearing to consider direct and credible evidence that one of Stewart’s jurors made numerous false statements about his qualifications to sit on the jury.