Frances A. McMorris

NEW YORK (WOMENSENEWS)–She has been pilloried in the press as an unfeeling and domineering execu-witch. And as her trial opened last week it appeared as if Martha Stewart, the Queen of Gracious Living, was on the verge of getting her comeuppance.

But is she sowing what she has reaped or is she a victim of an ambitious prosecutor’s office and a sexist society? After watching a day of her ongoing trial proceedings and mulling overthe details of the case against her, I’m tending to see Stewart as, to some degree, a victim of her own success, her own celebrity and her own image.

She also seems the victim of an overzealous prosecution team out to put a rather large feather in its collective cap. Notice, for instance, that the U.S. Attorney in Manhattan who originally brought the case, James B. Comey, is now back in Washington, D.C., near the top of the ladder in the Department of Justice.

Let’s take a look at the case.

Last week, as I attended the trial’s opening, television news stations were camped outside the old federal courthouse in Manhattan where the Stewart trial is being held. Overflow reporters who couldn’t squeeze into the room watched the proceedings on nearby closed-circuit television. As celebrity journalists such as ABC’s Barbara Walters and Dominick Dunne of Vanity Fair looked on, a stoical Stewart stared straight ahead as she listened to a government prosecutor portray her as a greedy liar.

The so-called “domestic diva” is on trial on charges of conspiracy, obstruction of justice, making false statements, tampering with evidence and securities fraud. All these charges are in connection with her sale of shares of New York-based biopharmaceutical company, ImClone Systems Inc.

Pivotal FDA Decision

In December 2001, ImClone was awaiting word from the Federal Food and Drug Administration about whether its lead candidate, Erbitux, would be getting approval for marketing as a treatment for colo-rectal cancer.

But the FDA rejected the drug. And ImClone’s chief executive, Sam Waksal, found out about that decision before it was public knowledge. On Dec. 27, 2001–the day before the FDA’s announcement–Waksal attempted to dump all of his shares and had family members get rid of theirs.

Waksal and Martha were friends and shared the same broker, Peter Bacanovic.

But Waksal apparently never told Martha about the FDA decision. And the government doesn’t contend that Martha received a tip from her now imprisoned pal. Bacanovic, the broker caught in the middle, wasn’t even in his office at Merrill Lynch and Co. the day of Waksal’s illegal conduct. It was Bacanovic’s assistant, Douglas Faneuil–the government’s star witness–who got Waksal’s request to sell the family’s ImClone shares, valued at more than $7 million.

Faneuil apparently called Bacanovic, who was on vacation in Florida, about Waksal’s actions.

Then a message was left for Stewart from Bacanovic’s office; a message that was written down by her assistant. Here are those words repeated in the government’s indictment: “Peter Bacanovic thinks ImClone is going to start trading downward.”

Hardly indicative of insider trading, are they?

By the way, Martha Stewart isn’t even charged with insider trading. Instead, she is charged with covering up the conduct that led to the trading of the ImClone shares.

Yes, she did sell all her shares of ImClone and avoided a loss. Yes, she did call back her broker’s assistant about ImClone. After all, Stewart got the message about ImClone as she was on a plane to Mexico for a vacation.

Agreed-Upon ‘Sell’ Price

Stewart’s lawyer, Robert Morvillo, told the jury of eight women and four men that his client was told that the share price had gone below $60; a price that she and Bacanovic had agreed earlier would trigger her decision to sell.

The government contends there was never such an agreement; that the pact was “concocted” afterward to cover up the insider trading. Morvillo told the jury that the prosecutors say that the motive for Stewart’s conspiracy, false statements and other illegal behavior is that she knew she had committed insider trading.

But, it seems more likely that Stewart was merely following her trusted broker’s advice. Sure, she was a former broker and sure she sat on the board of The New York Stock Exchange. But, there is still too much doubt to convict her.

For instance, her lawyer says that there are no telephone records showing that Bacanovic and Stewart had an opportunity to discuss making up a story about selling ImClone stock when it fell to $60 per share.

Restoring an E-Mail

Stewart did change an e-mail about the message involving ImClone and Bacanovic. But she restored the original wording before federal investigators ever saw it; and, Morvillo said, “before anyone could be misled.” For that, Stewart is charged with tampering with evidence. Morvillo called this aspect of the criminal case “much ado about nothing.”

The final count in the nine-count indictment against Stewart and Bacanovic is only against the mega-entrepreneur. It is securities fraud. And Morvillo called it “the most bizarre charge in this case.” Stewart is charged with securities fraud for publicly proclaiming her innocence. Prosecutors contended that her statements were intended to keep the stock of her company, Martha Stewart Living OmniMedia Inc., artificially high by misleading investors. No one has ever been charged with securities fraud based on that scenario.

The case against Martha Stewart is one of very technical readings of federal criminal law. The government can’t charge her with insider trading because there is no evidence that she knew that the FDA had rejected ImClone’s drug.

But her trading came at a time when corporate scandals were making headlines: Enron Corp., WorldCom, Tyco International Ltd. and many more. But those were accounting scandals in which top executives knew that their companies were not doing as well as they contended. Those were scandals in which investors were scammed out of millions, companies were forced to seek bankruptcy and employees lost their jobs by the thousands.

Celebrity Worked Against Her

Yet, the government needs to make an example of someone. Martha Stewart’s questionable trading can’t compare. Her celebrity, however, more than makes up for that. She is a female media star and 62-year-old businesswoman who took hearth and home–the domain of women–and built them into a financial empire on Wall Street, mirroring the accomplishments of men. While many admire her success, many also despise her accomplishments.

Remember, she now is on trial in the courthouse where hotel owner, Leona Helmsley, the so-called “Queen of Mean” was convicted and former Philippines First Lady Imelda Marcos was acquitted. Each day during the Marcos trial, the media noted what pair of shoes she had on. And each day Martha Stewart’s appearance is scrutinized with the same amount of detail. Looks like the double standard still exists.

Frances A. McMorris is an attorney admitted to practice in New York and New Jersey, an assistant managing editor at the business publication, The Deal LLC, and the most recent past president of The Newswomen’s Club of New York. She has written extensively about state and federal court cases in Manhattan and judicial opinions for The Wall Street Journal, The New York Daily News and Newsday.