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dispatches from the martha stewart trial:

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from: Henry Blodget

Going Through the Motions

Posted Thursday, Nov. 20, 2003, at 6:06 PM ET

Henry Blodget, a former securities analyst, lives in New York City. Read his full-disclosure statement about his potential conflicts of interest in covering the Martha Stewart trial here. For a complete listing of Blodget's dispatches, see Slate's Guide to the Martha Stewart Trial, which also has links to related Slate articles.

The heat's on, Martha

On Nov. 18, Judge Miriam G. Cedarbaum denied motions to dismiss charges in the case of United States v. Martha Stewart and Peter Bacanovic. Although this result amounted to a sharp kick in the defendants' teeth—the motions had consumed five months, hundreds of pages of legal briefs (Stewart's first submission alone was 137 pages), thousands of pages of supporting exhibits, and likely millions of dollars of legal fees—Martha Stewart and Peter Bacanovic did not wince, and their attorneys did not complain. Instead, they listened obediently in the wood-paneled courtroom inside the Daniel Patrick Moynihan U.S. Courthouse, along with the prosecutors and about a hundred spectators and press. The trial, which I will be covering for Slate, is expected to start in mid-January and last for five or six weeks.

That was the hard news. Here's some fluff:

Worried that I wouldn't get a seat, I arrived at the courthouse at 12:30, two hours before the hearing was scheduled to begin. I have spent some time in judicial offices lately, so I was expecting the place to resemble a bus station waiting room. It didn't. The hallway of the new Moynihan courthouse is paneled in bright marble and framed by skyline views.

Gradually, the hall filled up, with at least one other early arrival from CNBC using the dead time to research a substory he had unearthed when he recognized me in the bathroom (he was even kind enough to ask if I wanted to go on-camera—just like the old days). By 1:45, about 30 people, mostly reporters, were lined up outside the courtroom door. The word was that Stewart would appear at 2, and she did. The elevator doors opened, and there she was, looking just like Martha Stewart. She hesitated momentarily, then glided past us into the courtroom.

Some journalists can squeeze more out of seven seconds than others. The notepad of the TV reporter in front of me, I noticed, had suddenly sprouted a detailed list of everything Stewart was wearing—gold earrings, black shirt, brown sweater, etc. A print reporter next to her was now cribbing frantically. Feeling a sudden jolt of incompetence—my notebook was blank—I started cribbing, too.

"Put on weight, don't you think?" the (first) cribber said. "Thirty pounds, maybe?"

The other reporter nodded.

"Did you see that Enquirer photo? Looked like she weighed 300 pounds."

"Awful. Looked good on Barbara Walters, though."

"Amazing earrings. Big diamond studs."

"Sent the wrong message. Should have been understated—gold."

At this, a third reporter whirled around, clutching a rolled-up copy of one of the legal filings.

"ONE POINT FIVE MILLION," she declared, her face flushed with excitement.

One point five million what? I wondered. Viewers? Pageviews?

"One point five million," she said again. "That's what those earrings cost."

The elevators now delivered groups of men and women in suits. One group, I subsequently learned, contained Michael Schachter and Karen Patton Seymour, the Assistant U.S. Attorneys who will try the case. Seymour, the head of the U.S. Attorney's criminal division, is an attractive, blond woman with a quick smile (especially after the hearing), who wouldn't seem out of place in the trust department of a bank. Schachter wouldn't seem out of place anywhere, at least judging from the view I had of the back of his head.

Another group contained Peter Bacanovic, Stewart's former stockbroker and current co-defendant. Bacanovic looked like a lot of the people I used to work with on Wall Street—startlingly young and miles from what I used to think of when I thought of "co-conspirator."

"Was that Martha's mom?" a reporter behind me suddenly demanded, when Bacanovic was long gone and a woman I had barely noticed had disappeared into the courtroom.

"Martha's mom?"

"The woman who just walked by. Did you see the Barbara Walters interview? Was that Martha's mom?"

"I don't know," I confessed, hit by another wave of insecurity, wishing I were still covering stocks.

The court guards split us into subgroups—in-house press, other press, and non-press—and told us to get our credentials ready. The in-house press, the dozen or so reporters permanently assigned to the courthouse, shuffled toward the door. My two-hour advantage nullified, I again began to fret that, with only a letter from my editor and a passport for credentials, I wouldn't get in.

I contemplated switching to the non-press line, on the other side of the door, which had only six people in it. The most notable was a guy from Save Martha! (www.savemartha.com), who had, a few minutes earlier, pulled out a "SAVE MARTHA!" T-shirt. "If her stock sale was legit, you must acquit!" it read. Other items available at the Save Martha! Store include a Save Martha! Baseball Cap, a Save Martha! You Must Acquit BBQ Apron, a Save Martha! You Must Acquit! Mug, a Save Martha! Boxing Hooded Sweatshirt, a You Must Acquit! Retro Tote, a You Must Acquit! Mousepad, a Save Martha! Retro Trucker Hat, a Save Martha! Audio CD (performed by "Mama Said"), a Save Martha! Retro Jr. Baby Doll T-Shirt, a Do the Thyme! White T-Shirt, a Save Martha! Stainless Steel Travel Mug, Save Martha! Boxer Shorts, a Save Martha! Messenger Bag, a Save Martha! Snap Bib, and a Domestic Diva Tile Coaster.

The Save Martha! slogan—"If her stock sale was legit, you must acquit!"—gets at one of the tensions of the case. The prosecutors aren't alleging that the trade was illegitimate; they are saying, in effect, that whether it was legitimate or not is irrelevant. At issue is whether Martha Stewart should go to jail for allegedly lying, conspiring, etc., to cover up an action that, at the time, as alleged, wasn't a crime (selling a stock because she learned that the CEO of the company was trying to dump his own stock like a pot-smuggler about to be boarded by the Coast Guard). What complicates matters, of course, is that Stewart's subsequent actions—the temporary alteration of her phone log, etc.—suggest that, at least momentarily, she might have considered the trade a crime (or thought that others might consider it a crime). Meanwhile, in a parallel, ground-breaking civil case, the Securities and Exchange Commission is alleging that the trade was a crime, even though, according to legal experts, the type of information Stewart allegedly received—and she hasn't denied receiving it—hasn't been illegal to trade on in the past (the information was "market" information, not "inside" information, and although some kinds of market information are illegal to trade on, this kind hasn't been treated that way). If the SEC action is successful, it will extend the definition of insider trading to criminalize what Stewart allegedly did, but only after her trial on obstruction of justice charges is over.

At quarter past 2, the "in-house press" was called. They, along with the sketch artists, would get the coveted "profile" seats. At 2:20, the "non-press" was summoned (I should have switched lines). Finally, at 2:25, after the print reporter ahead of me had grumbled, "Bottom of the barrel here," and a quasi-famous TV reporter at the back of the line had mingled his way to the front, the "other press" was summoned, in groups of five. I approached the guard and held up my passport, sure I was about to get bounced. He didn't even glance at it as he waved me in.

dispatches from the martha stewart trial
entries
12345678910111213
from: Henry Blodget

Going Through the Motions

Posted Thursday, Nov. 20, 2003, at 6:06 PM ET
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Henry Blodget is the editor of Silicon Alley Insider.
Photograph of Martha Stewart (Nov. 20) by Peter Morgan/Reuters. Photographs of: Stewart and Sam Waksal by Chip East/Reuters; Douglas Faneuil by Doug Kanter/Agence France-Presse; and Peter Bacanovic by Stan Honda/Agence France-Presse (Dec. 3). Photograph of Martha Stewart by Anthony Bolante/Reuters (Dec. 19).
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Remarks from the Fray:

Prosecution could have brought attention to insider trading without a full blown witch hunt attitude. Martha may have had sweet deals whispered in her ears and responded but isn't that more common than we would like to admit? Since she is not being charged with the insider trading the decision to charge her for an obscure related crime is probably not a good idea.

Martha should have spilled the beans immediately as the amount we are talking about is minuscule to her wealth but there was more at stake in poor publicity so she made a serious mistake in judgment. Charge her for being stupid so everyone can move on.

That mistake empowered the government and the SEC who were under staggering pressure from the Enron situations to go for the throat of someone, or anyone but should they have picked Martha? I think the answer is no simply because instead of exonerating the SEC and government, it only spotlights the weakness of the enforcements and laws. The Ken Lay's of the CEO world walking around after cheating people of millions if not billions simply because no provable law has been broken becomes highlighted by the pack attack of one woman being destroyed with something akin to joy...

--Meta4

(To reply, click here)


While I agree that there are parts of the case against Martha that are hard to understand, Blodget's theorizing on her behalf seems quite implausible. Sure, it was possible that Stewart and her brokers discussed the sale without transmitting any material nonpublic information. But think about it: Why would she buy shares in Waksal's company using Waksal's own broker, and call that very broker about selling decisions, if she didn't hope to get inside information?

For Stewart to be innocent, the call would have to go something like this: "Douglas, this is Martha. Before you say anything, shut up and listen. You know I'm calling about ImClone. I know that you are Sam's personal broker. This means that you must be very careful not to divulge any material information you have learned from Sam, not even in a wink-wink-nudge-nudge way, because then I might be guilty of insider trading. Instead, I want you to pretend you are not Sam's broker, and please give me only publicly available information. Oh, and please don't think it's strange that I'm calling you about selling at 59 after having previously instructed you to sell at 60." Not very likely.

--Scythe

(To reply, click here)

(12/4)

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