My Martha Stewart Story

Part I

Somewhere in my garage there is a VHS tape, which tape contains a recording of a live TV news feed from March 5, 2004.  The scene is from outside the federal courthouse in downtown Manhattan.  In the video you can see me in the background exiting the courthouse looking dumbfounded.  Snow flurries were starting to form.  I was wearing a suit.  What was I doing there?  And why the confused look?

In the foreground of the footage, you could see Martha Stewart being briskly escorted to her town car by her criminal defense lawyers.  Minutes earlier, behind her, and behind me, inside the building, a jury had just found her guilty of four felonies, including obstruction of justice, conspiracy and making false statements.  From the top of the steps where I was, one could behold a sea of news trucks and their lights stretching down Centre Street as far as the eye could see.   

This was over twenty years ago, but I remember that day vividly.  I didn’t have to look up the date.  My decades’ long effort to repress the memory was thwarted last week when I decided to watch a new documentary on Netflix about the life of Martha Stewart. For Martha Stewart, March 5, 2004 was the low point in an otherwise incredibly successful professional life, a nadir which included her serving a five-month sentence in a federal penitentiary.  The documentary recounts Martha Stewart’s meteoric rise as a media personality, brand-builder and corporate mogul. At her professional zenith, her net worth on paper started with the letter “B.”  

At the time of the Martha Stewart criminal trial, I was only a few years out of law school, working at a big Wall Street law firm.  I was not yet thirty years old.  Mozart had already written 38 symphonies by that age.  The Beatles had already written and recorded every Beatle song ever made.  In my profession, I was a mid-level associate attorney, which meant I was still basically a nothing.  (In baseball parlance, my professional “WAR” was still hovering below 0.0.)  The firm had a widely-respected white collar criminal practice, which for firms like mine just meant that if one of our clients was under criminal investigation, we would be expected to cooperate with the federal authorities who wanted to throw them in prison, and in return, the prosecutors would take their foot off the gas a little bit, and all the lawyers would shake hands and smile at the sentencing.  The client was still sent to prison.     

The firm’s client at the time was not Martha Stewart personally.  She had hired her own defense team to help keep her out of prison.  Our client was actually her company, Martha Stewart Living Omnimedia, the publicly traded corporation whose fortunes were inexorably tied, for better or for worse, to the fate of its founder, largest shareholder, content creator, and spirit animal, all embodied in the same 62-year-old woman.     

The background of the charges against Martha Stewart was as follows: Martha Stewart owned some stock in a biotech company called ImClone Systems, which company was developing a cancer drug.  She owned 3,928 shares and was friends with ImClone’s founder and CEO, Sam Waksal, which is the reason she owned the stock in the first place.  On December 27, 2001, while she was about to board a private plane to Mexico to go on vacation, Martha Stewart received a phone call from her stockbroker – actually her stockbroker’s assistant – telling her that members of the Waksal family were selling their shares of ImClone.  The stockbroker knew this because he was the Waksal’s broker as well.  The assistant posed the question: the stock is going down; do you want to sell your shares, too?  The stock was trading at around $60 per share, which meant her total stake was worth a little less than $300,000.  Martha Stewart said yes, sell.  Like every other interaction between Martha Stewart and the assistant, she was apparently quite nasty during the call, a fact that came out at the trial to great fanfare and to the surprise of precisely zero people.    

The next day, it was announced that ImClone’s key cancer drug was being rejected by the FDA and the price of the stock fell precipitously (but not catastrophically).  The fortuitous phone call from her broker had saved her roughly $45,000.  It also turns out that Sam Waksal knew about the FDA’s announcement days in advance and that’s why his family was trying to unload their stock.  This is a big no-no.  Hopefully, you can see why what the Waksals had done was illegal — you are not allowed to buy or sell shares of stock if you have non-public, material information about that company.  This is what is referred to as insider trading. 

What about Martha Stewart?  Was her sale also considered insider trading?

Good question, but let’s first continue with the story.  It didn’t take long for the federal authorities to get wind of the Waksals’ illegal stock sales.  It was also easy for them to dig a little deeper.  If these particular insiders sold their shares illegally, were there any other suspicious stock sales around the same time?  This is when they uncovered a sale of 3,928 shares by one seller the day before the FDA announcement.  Was this person connected to Sam Waksal?  Funny you should ask.

Martha Stewart with her friend, Sam Waksal

That’s when the feds reached out to Martha Stewart and asked her to sit down for an interview to ask her a few questions about her stock sale.  She was represented by Wachtell, Lipton, Rosen and Katz, which was at the time, and now, one of the most prestigious and lucrative law firms on Mother Earth.  This is a good time to start comparing classes of lawyers, not in terms of monetary compensation or professional prestige, but by the sobering metric of the level of power each has over other human beings. Because that would explain this incredible fact: when the government lawyers asked for this interview, the Wachtell lawyers said yes.    

Ending the suspense, as to the question of whether Martha Stewart’s sale of ImClone shares constituted illegal insider trading, the answer is actually no. At best, all Martha Stewart might have known was that the CEO and his family were selling their shares.  She did not have inside information about ImClone the company. She was never even charged with insider trading. This should have been the end of the story, don’t you think?

It wasn’t close to being the end of the story, however, because when Martha Stewart eventually sat down with the federal authorities for a not-under-oath conversation with FBI agents and lawyers from the SEC, she said she didn’t know anything about ImClone, the FDA decision, or the Waksal sales.  She also said she didn’t remember what was specifically discussed during this minute long conversation with her broker’s underling.  This became the crux of the entire criminal case against Martha Stewart — did she lie to the FBI about the ImClone stock sale, even though it would not have been a crime had she told them everything? 

With twenty years of hindsight, I would phrase the question a little differently.  What did Martha Stewart do that was so wrong?  Or, with even more nuance: who the fuck cares?  A million people do a million times worse things every day without any prosecutor giving it a second thought.    

No one was harmed by Martha Stewart’s less then forthcoming statements to the federal agents who interviewed her that day.  The government already had the Waksals dead to rights. I have a rule of thumb, which you may disagree with, and which surely has exceptions.  If there is no clear victim of a crime, like a person or a group of people, is it appropriate for that defendant to go to prison?

My personal experience with the Martha Stewart case, as an associate at a big firm with an increasingly desperate client in a high-stakes trial, was miserable.  The ordeal from the beginning of our engagement to the end of the trial lasted two years.  Two years of reviewing boxes of documents, two years supervising unluckier junior attorneys as they reviewed boxes and boxes of documents.  (Yes, that’s how we did it back then. We got all the e-mails from the company server and then we printed them out and put them in a giant conference room and started sorting the documents into piles: responsive, non-responsive, privileged, and “hot docs!”)  We reviewed all of Martha Stewart’s e-mails and her company calendars, which we were then obligated to provide to the prosecutors, because we were under subpoena.  We spent two years being yelled at by Martha Stewart’s lawyers for providing too much information.  We spent those same two years being yelled at — and threatened — by the prosecutors for not providing enough.  The day my first child was born was the day the prosecutors submitted a motion that the company wrongfully withheld a particular Martha Stewart e-mail, which we had claimed was subject to privilege.  I was literally reading the motion on my Blackberry while in the hospital. This was not a great job.

The last stage of this case, the trial itself, was the culmination of those years of effort.  In perhaps the weirdest assignment imaginable for a mid-level associate, I was tasked with attending the trial every day, which lasted almost six weeks. Although several company executives took the witness stand, which required a great deal of preparation, for the most part I was just observing. Our firm billed me out at a ludicrous hourly rate so that I could go to court, take notes, and report back to the company’s board and senior management at the end of each day’s proceedings.  I spent every day at 5:00 p.m. in a Superman-friendly phone booth as I presented the play-by-play of the day’s events to a gathering of concerned executives, executives whose livelihoods were on the line and couldn’t wait to read about the day’s events in the newspaper. 

On March 5, 2004, the word arrived that the jury had reached a verdict.  I rushed to the courthouse, flashed my credentials, and sat in the courtroom as the verdict was read. 

Guilty on all counts.  Gasps all around.  Her daughter Alexa collapsed back in her seat.  It was a bloodbath. 

I imagine the mood was even more animated in midtown at the headquarters of Martha Stewart Living Omnimedia, a company with hundreds of hard-working employees, a company which had done nothing but cooperate every day with the criminal justice system while their founder sat arms-crossed at the defendant’s table awaiting her fate.  The stock floundered during the investigation and trial, but tanked immediately after the verdict.  The stock exchange halted all trading in MSO that afternoon.  I suppose there were victims after all. 

The lesson of the Martha Stewart trial, for me, is simple, and admittedly cynical. Once a federal prosecutor decides to use the power of the office against a citizen, that citizen’s freedom, and therefore everything their life is built upon, is in grave peril, and will continue to be in peril indefinitely.  It goes without saying that many people who are the target of criminal investigations deserve to be prosecuted and, if found guilty, deserve to go to jail.  But still.  Ever since the Martha Stewart trial, I have an unshakeable, almost subconscious sympathy for the subject of any criminal indictment, especially ones that do not present with an obvious moral infraction, or human victim. 

The underappreciated reality is that there are so many criminal statutes on the books that it does not take much for a prosecution team to establish the elements of a case against someone, anyone, really for doing pretty much anything.  Obstruction, RICO, mail fraud, wire fraud, conspiracy, you name it.  Each of these criminal statutes has their purpose, no doubt, but they are also Choose Your Own Adventures for creative prosecutors looking to make an example of somebody.  Each of us, every one of us, including everyone we care about in our lives, is only out there walking free because we are not currently under the piercing eye of the Department of Justice.  Or so we hope. 

Martha Stewart’s timing was also cosmically unlucky.  She sold that ImClone stock immediately after Enron collapsed, right before WorldCom went under, right in the middle of a host of high-profile examples of corporate malfeasance blowing up like land mines as Martha Stewart tried in vain to defend herself from being lumped together with infinitely worse actors.  Next to these other guys—really next to anything, really—her stock sale was mostly nothing. It didn’t relate to her company in any way, yet it was lumped together in the public imagination as being cut from the same cloth as these other outright frauds.  Did I mention it wasn’t even a crime in the first place?

Yes, it was also unfortunate that she could be mean and vain and easy to dislike on a personal level.  I interacted with her on several occasions. Each time, she was perfectly friendly, albeit under increasing stress, and even gave me a signed a copy of her latest baby magazine issue after my son was born. If you watch the documentary, you see that she can be funny and charming at times, but she’s also prone to snap at people.  She built a brand around being a perfectionist, after all.  What did you expect?   People — and jurors — have a hard time separating one’s unlikability with one’s criminal guilt.  The broker’s assistant testified at the trial that she was always very mean to him.  Sorry, lady, in that case you’re going directly to jail.  

More so than anything else, however, the factor that doomed Martha Stewart was the same thing that dooms every would-be criminal defendant: an ambitious prosecutor decided to indict her.  When you boil it down, that’s all you need.   

Fun fact: I’ll give you one guess as to the name of that prosecutor. 

The prosecutor who put Martha Stewart in jail was none other than James “Jim” Comey.  Comey, who later famously headed the FBI, and was eventually fired by Donald Trump, has seemingly faded into political irrelevance by the time of this writing, but for a two-year period he found (made?) himself in the swirl of political controversy.  If you don’t remember, maybe this will refresh your recollection.  You either hated him and then loved him, or you loved him and then hated him.  The reality is he was the same person the whole time, a self-righteous opportunist who enjoyed the power inherent in his high-level bureaucratic standing.  He was the Gene Steratore of law enforcement, someone whose misguided instinct to impose his personal stamp on things blinded him to any sense of what was just.  I’m glad he’s no longer making those judgments.

It is clear in the documentary that Martha Stewart regards her conviction as a miscarriage of justice (“Those prosecutors should’ve been put in a Cuisinart and turned on high.”)  She’s not wrong, except possibly for the Cuisinart part.  People generally assume that rich and powerful people, armed with the best lawyers money can buy, should be able to escape conviction.  If such a person does happen to get convicted by a jury of their peers, they are guilty and deserve it.  But Big Ern was wrong in Kingpin when he said that having money made him above the law.  Never underestimate the power of the government to violently remove you from your life.  They can always get you.                

The immense power of the prosecutor, especially the federal prosecutor, is so imposing that apparently the only way to reliably insulate yourself from their clutches is to do something drastic, namely to become the President of the United States.  For the rest of us, for those who are not fortuitous enough to get elected to the office of the President, and who find ourselves in the cross-hairs of the death ray being wielded by a team of prosecutors, I’m sorry to say this, but I’m pretty sure we’re fucked.

Click here for Part II, which recounts a run-in with a celebrity in the courtroom.