Martha Stewart Verdict

Guilty Verdict

Martha Stewart was convicted of lying to the Securities and Exchange Commission investigation of the ImClone trade. The devastating verdict will probably mean prison time for the homemaking icon. Martha Stewart Living Omnimedia Inc., her company based on the distribution of her magazines, popular television shows and her products commonly sold at Kmart, now faces an uncertain future.

Jesse Choper, Earl Warren professor of public law at UC Berkeley, was online Monday, March 8 at 1 p.m. ET, to discuss the Martha Stewart and Peter Bacanovic guilty verdicts.

Choper has been covering and teaching corporate law for over 40 years and is UC Berkeley's faculty expert on the Martha Stewart trial. He has written several casebooks including the ninth edition of his Constitutional Law casebooks; the fifth edition of his Corporations casebook; the second edition of The Supreme Court and Its Justices; "The Endorsement Test: Its Status and Desirability," in the Virginia Journal of Law and Politics (2002); and "Taming Congress's Power Under the Commerce Clause: What Does the Near Future Portend?" in the Arkansas Law Review (2002). Choper served as law clerk to Chief Justice Earl Warren of the U.S. Supreme Court. He has taught at the Wharton School of the University of Pennsylvania, the University of Minnesota Law School and Harvard Law School.

Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.

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Vienna, Va.: Do you feel that Martha Stewart got a fair trial? I was not impressed at all with the whole spectacle. The Government's case appeared very weak at best; it is difficult to prove insider trading influence and the Government, in my opinion, certainly did not do so in a clear manner. The witnesses kept changing their stories; the judge was clearly biased against her lawyers and would not allow key defenses to be given in front of the jury; and the jury itself argued for three days before finally convicting her. Then, to add insult to injury, one juror stated that this was a victory for the "little guy". This trial was not about "little" vs. "big"....it concerned one woman, her broker, and one portfolio, that's all....it was not an Enron-type case ultimately involving thousands of employees.
My guess is that she and her lawyers will have little difficulty getting this whole charade either overturned or declared a mistrial. if not, the Supreme Court should consider it.

washingtonpost.com: Stewart Guilty on All Charges (Post, March 6)

Jesse Choper: The issue raised in the question does not go with the question if there was a fair trial. The question is if she should have been prosecuted at all. You have a perfectly reasonable point. It may well have been, at least in the prosecutor's mind, a violation of the law and in fact she was convicted by the jury of some of the laws that she was charged with violating -- although they were not laws dealing with corporate or securities misconduct. She was charged with those laws [corporate or securities misconduct] but the judge dismissed those charges on the ground that the judge did not believe there was enough adequate evidence. To put it another way, the judge believed that no reasonable jury could find her guilty of the corporate and securities misconduct charges introduced in her trial. What she was convicted of by the jury was lying to the investigative officials -- the government, FBI and Securities and Exchange Commission. That is an offense but a much less serious offense. Many people lie in order to defend themselves and to prosecute someone for that is somewhat unusual. But nonetheless all of what I have said does not go to the question of whether she had a fair trial. Although the case will be appealed, her lawyers will say that they should have had the opportunity to introduce a number of pieces of evidence that the judge refused to let come in. Whether that is true or not will be determined by the Federal Court of Appeals. And if the court of appeals decides that she didn't get a fair trial then she'll get another trial or will have to be released.

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Mount Vernon, Wash.: My comment is what you think about conflict of interest in people being friends with their brokers.
I don't think the practice is rare and I think it leads to exactly this kind of incident.
Maybe people shouldn't be allowed to know their broker or who it is. Maybe the Head of Brokerage firms should not be allowed to socialize with their clients.
I think they should be held accountable, not the client.

washingtonpost.com: Analysis: Verdict's Message: Tell Corporate Probers the Truth (Post, March 6)

Jesse Choper: That is not an unreasonable suggestion. The answer is that our societal judgement on that would be overkill. Business people are social friends with their accountants and lawyers. Even the recently enacted Sarbanes-Oxley act, which went quite far in seeking to avoid future Enron-like scandals, did not go as far as your suggestion.

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Oakton, Va.: The guilty verdict in this case seems highly questionable, doesn't it, given the weakness of the Justice Department's case, the lack of witness credibility, and the fact that this did not involve anyone else but her and her broker?
I personally would not be surprised to see her win the appeal.

washingtonpost.com: Martha Stewart's Appeal Won't Be Easy (Post, March 7)

Jesse Choper: The judge found that the two charges concerning corporate and securities violations were not supported by adequate evidence. But on the lying charges, he found enough evidence to go to the jury. If the federal court of appeals finds that there was not enough evidence then they will reverse the conviction and that will be the end of the prosecution.

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Arlington, Va.: I would think Martha's company would soon exclude her name from anything related to their products, possibly finding another domestic guru to replace her. Is that a scenario possible?

washingtonpost.com: For the Stewart Brand, an Uncertain Future (Post, March 8)

Jesse Choper: It certainly may be possible but that would require the support of the majority of the shareholders of the stock.

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Silver Spring, Md.: How much punishment is too much? Ms. Stewart cannot run her company anymore. Her net worth has dropped by over 50 percent due to the diminution of the value of her company. What possible good is there to putting her in jail? Is she a threat to society? Does anyone think she will ever repeat what she was convicted of doing?

Jesse Choper: I don't know what anyone would think. Martha Stewart is unfortunate in that "she isn't liked" (in the words of Arthur Miller in "Death of a Salesman"). Therefore some people feel that she should receive all that the law permits her to receive. But I am more sympathetic where I do not think she poses a threat to society and it is unlikely in the extreme that she would ever violate any laws like this again. And I would also predict, although one can never be sure, that if her conviction is affirmed on appeal, her sentence will be much much less than the maximum.

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Bethesda, Md.: Alan Dershowitz has been very critical of Ms. Stewart's lawyers for not putting her on the stand and for not putting on more of a defense. Fair criticism or Monday-morning quarterbacking?

Jesse Choper: These are very often very difficult judgements on the part of the defense lawyer. I can only speculate as to what went through her lawyers' minds -- apparently it would be one or more combination of the following situations. First, they believed that the prosecution's case was not that strong and that the jury would acquit. Second, there involves their assessment as to how effective she would be as a witness in front of this jury. We do know that there were a lot of people in this country that do not like her for one reason or another. The extent to which that was true of some of the jurors, and if they had those feelings if they could put those feelings aside, were considerations that were weighed by the defense lawyers. If her conviction is affirmed then they probably would have done otherwise if they knew that would happen. If it gets reversed, then they're judgement would be questioned a lot less.

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Groton, Mass.: How do you believe the situation would be today for Martha, had she just apologized for making a mistake and admitted her guilt?

Would she still have faced jail time, etc.?

Jesse Choper: That is very difficult to answer at this stage. Even if the Court of Appeals affirms the conviction, she may end up with less than what she would have gotten on a guilty plea. You would also have to speculate as to how many of the charges she would have plead guilty to. After all there are only two charges left in the case -- half of what she was originally charged with and the serious ones dismissed. Finally if this gets reversed, it may well be that she will end up with no jail time or penalties at all. So, hindsight as to what she should have done is always 20/20.

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Mitchellville, Md.: Professor Choper, thank you so much for your excellent casebooks on Constitutional law and Corporations--I studied with your 1979-1980 editions! I have two questions: (1) Do you think the judge's exclusion of evidence on the elements of insider trading constituted reversible error; and (2) Might you comment on the ethics of lawyers and judges commenting and opining on the outcome of a case without no knowledge of all operative facts and controlling precedent?

Jesse Choper: We will only know that only after the court of the appeals rules because as I understand it, that will be a major point raised by Stewart's lawyers on appeal.

In answering your second question: Being someone who does a lot of commenting on pending cases, I respond as follows: I think that people who understand the law have some obligation as legal cases proceed to help the public understand what is going on. Having said that, I think it is important for commentators to be careful in basing judgements on matters on which they do not have full knowledge -- as your question implies -- and to qualify any comments, observations, predictions, judgements and criticisms of what transpired in light of their own gaps in knowledge. Without doing that, their mission in informing the public becomes one of misinforming the public.

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East Lansing, Mich.: I have seen very little written about the background and any motives of the prosecutors/government officials who made the decision to try Ms. Stewart. Do you think she was an "easy target"? I find far more disturbing reports of, e.g., how Michael Eisner of Disney got compensations worth hundreds of millions of dollars from a corporate board which had friends of his, or how Dick Cheney could go from Defense Secretary to CEO of Halliburton, making over $30 million/year with substantial increases in government contracts to Halliburton. These latter cases, as well as the Enron, etc. scandals, seem to impact the public welfare far more than what Martha Stewart did.

washingtonpost.com: The Martha Stewart Case: (Interactive Primer, washingtonpost.com)

Jesse Choper: A good deal of this I answered above. There is a difference however between actionable misconduct on the part of corporate or government officials for which they may be sued in a civil case. For example, in a shareholder's derivative suit as far as Eisner may be concerned is different from Stewart's situation. She was charged with violating federal criminal statutes which are prosecuted by federal government prosecutors -- even though in many ways as you suggest, they are not as serious as corporate insider misconduct.

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Davison, Mich.: Isn't it part of a stockbrokers job to inform or give advise to a client when movement is noted on a stock i.e. its trading down? And how can the client be held responsible for an "insider tip" given to someone other than themselves? In Martha Stewarts case Sam Waksal is the one who traded using an insider tip. Martha Stewart did not get the "insider tip," only that her friend was selling. Also, when did "I don't remember" become a lie?

washingtonpost.com: Analysis: Verdict's Message: Tell Corporate Probers the Truth (Post, March 6)

Jesse Choper: I can't answer your second question but for the first question, I believe that Peter Bakanovic knew inside information that was not publicly known that Waksal was trading the stock. So, this is not a situation in which a stockbroker tells a client something that is either the product of public information or the product of the stock brokerage company's research based on public information. And that is the problem here.

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Oakland, Calif.: How important do you think it for convicted CEO's and other white collar criminals to receive heavy sentences and actually spend time in prison? It seems to me that we should punish them AT LEAST as heavily as other kinds of non-violent crime, if not more heavily. After all, they were given a position of standing and trust within our system and betrayed it. Moreover, the dollar value of their crimes are much higher than the average felony theft or burglary.
What is appropriate, in your view?

washingtonpost.com: Analysis: Verdict's Message: Tell Corporate Probers the Truth (Post, March 6)

Jesse Choper: That's a fair observation. The question always is the extent to which the public and the common good is injured by the misconduct. A burglary is often intent of real dangers of bodily injury -- which is different from embezzlement which ordinarily doesn't. Should people who profit by trading on insider information with no greater financial impact on the public interest than [be compared to] people who embezzle then I agree that the sentence should not be significantly different.

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Irvine, Calif.: Why we haven't seen the same vigor against Martha by the U.S. prosecutors against Ken lay of Enron?

Jesse Choper: Assuming Martha Stewart was convicted of all the charges than it still seems that her misconduct had a much smaller impact on the public and the public interest than did those who were responsible for what happened in Enron -- or some of the other major corporate failures which dramatically affected the financial lives and in many cases, personal lives, of thousands of people.

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washingtonpost.com: Thank you for your questions. That was the last question and wraps up the discussion.