Stewart's conviction serves as a moral lesson in the futility of arrogance

Published Mar 27, 2004

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In June last year Scripline devoted two columns to the insider trading probe against Martha Stewart, the one-time doyenne of homemaking in the Unites States.

To recap, the probe centred on Stewart's sale of shares in Imclone shortly before the publication of news that the US Food and Drug Administration had rejected the biotechnology firm's application to market its anti-cancer drug, Erbitux.

In the greater scheme of things, the case should never have gone to court. It involved the sale of a small number of Imclone shares, which, in relation to Stewart's fortune - which briefly hit $1 billion - were of no real account. The case should have been settled immediately.

Initially Stewart found herself in a pothole but, instead of simply skipping out of it with a slap on the wrist, she began to dig herself deeper and deeper into the nightmare of prosecution on securities fraud charges.

This would never have happened if Stewart had admitted from the start that she had sold her Imclone stock in 2001 because she had heard that Sam Waksal, Imclone's chief executive, was selling his.

But Stewart made no mention of the tip when interviewed by investigators on February 4, 2002. Two months later she made matters worse by claiming she had no memory that she knew in advance that Waksal was selling his shares.

As Stewart fumbled, the prosecution - desperate for a high-profile securities fraud conviction - built its case with great patience and determination. From September 2003, with a grand jury indictment pending, the prosecutors were adamant that any plea bargain they struck with Stewart would result in her spending some time in prison.

At the trial three weeks ago Stewart's lawyer, Robert Morvillo, called only one witness - a lawyer who had attended Stewart's initial interrogation. Morvillo's aim was to cast doubt on exactly what questions Stewart had been asked.

Another controversial decision by Morvillo, who is apparently one of the best defence attorneys in the US, was to keep Stewart off the witness stand. Although this was perfectly within her rights, it may have signalled a weakness in the defence's case, because putting Stewart on the stand would have opened up her testimony to cross-examination.

In contrast to the defence's single witness, the prosecution called almost two dozen.

Without being privy to all the facts, it is not possible to judge the efficacy of the defence's strategy. Morvillo obviously had good reasons for keeping Stewart from testifying.

A huge setback for Morvillo was the fact that he was not allowed to present a central part of Stewart's defence. US district court judge Miriam Goldman Cedarbaum ruled that he could not put before the jury his argument as to why the government had never officially brought a charge of insider trading against Stewart.

A massive achievement, however, was persuading the judge to disallow the charge of securities fraud. This is truly ironic. If Stewart had not tried to cover up her original deed, she would have been home free. Instead she was found guilty on all four remaining counts - conspiracy, obstruction of justice and two counts of lying to investigators.

Sadly, Stewart's new home is likely to be behind bars. Lying is always reprehensible, and lying to government investigators is plain stupid.

This whole saga is instructive on many levels. It shows that tenacious regulators are often successful.

On another level it shows how the American Dream can go badly wrong when the goal of material success is married with a proud and arrogant attitude. The dream is also soured when people forget their humble beginnings and those less fortunate than themselves.

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