Hurry Up and Wait
Reports on the antitrust suit.
March 5 2004 12:09 AM

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Chance of conviction
Thursday, March 4, 2004: 40 percent
Jury deliberations continued. My personal preliminary verdict (not guilty, and not a prediction) remained unchanged, but also remained a minority view. Stewart's chances of conviction remain at 40 percent, Bacanovic's modestly higher.

Deliberations were delayed this morning after a subway accident stranded four jurors. Not that we really noticed the difference. In the crowded courtroom, two reporters played chess. One read a novel he wrote 20 years ago. ("It's pretty good!" he said, surprised.) Some smuggled in newspapers. Others deliberated. A random sampling revealed the same range of opinion as yesterday: "Oh, of course [they're going to get convicted]." "Hung jury for her, conviction for him." "Jury nullification: acquittal." One TV reporter confided that her network had seven people on site and a "playbook" for reporting the verdict; speed was apparently so essential that they had conducted a dress rehearsal.

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For hours, it seemed, nothing happened. Then, suddenly, we heard a familiar rap on the door.

"All rise!" shouted the marshal. All rose. Judge Cedarbaum glided in, robes trailing.

"Please be seated," she said. "We have another note from the jury."

Another note from the jury! Thirty seconds later, the courtroom was packed.

Over the course of the day, we received several notes from the jury. The first requested testimony pertaining to Peter Bacanovic's comments about speaking to Martha Stewart on Dec. 27, 2001. Judge Cedarbaum read the note aloud, then disappeared, leaving the government and defense teams poring over transcripts. Four hours later, Judge Cedarbaum returned to settle a dispute about exactly what testimony should be delivered. Then she disappeared again.

In the late afternoon, a note arrived with a technical question. One criterion for proving the crime of perjury, with which Peter Bacanovic has been charged, is the so-called "two-witness rule": The falsity of an allegedly perjured statement must be corroborated by either the testimony of two witnesses or one witness and a document. The note from the jury asked the following:

Re perjury (Count 6, Specification 1, in which Bacanovic describes the message he left with Ann Armstrong on the morning of Dec. 27, "Peter Bacanovic thinks ImClone is going to start trading downward"). Can the testimony of one witness and a document produced … by the same witness at a different place and time be considered two pieces of evidence? In other words, could Armstrong's testimony plus the message she created satisfy the "two-witness rule"? Not surprisingly, the defense argued "no"; the government "yes." A recess for research lasted until nearly 5 p.m., when the jury went home. The judge will rule on the issue in the morning.

Every time a note arrives, of course, the press speculates about what it means. Today's early notes suggested the jury was mired in Count 2: False statements by Peter Bacanovic. This, in turn, suggested that deliberations might last until June. The early afternoon notes were inscrutable. The final note, the perjury clarification, suggested that the jurors had either suddenly progressed to the third-to-last count (verdict imminent!) or were skipping around. It also suggested that the jurors were taking their jobs extremely seriously. Some interpreted the note as bad news for Bacanovic.

Personal Deliberations, Continued

In yesterday's dispatch, I described my personal deliberations, which have now lasted about 36 hours. Despite some waffling this afternoon, my preliminary verdicts for both defendants remain unchanged: not guilty on all counts. I should note that this is a minority opinion. I should note, too, that in our system of justice, "not guilty" is not a synonym for "innocent."

I also described my thinking with regard to the first of four key assertions that underlie most of the charges: the prosecution's contention that the $60 agreement was a fabrication. I concluded that the government had not proved this concept beyond a reasonable doubt. This leaves three additional assertions:

  • Stewart and Bacanovic lied about (and/or concealed) what happened on Dec. 27, 2001.
  • Stewart and Bacanovic lied about not discussing the government's investigation into Stewart's ImClone trades prior to their interviews with investigators.
  • Stewart, Bacanovic, and Douglas Faneuil, or at least Bacanovic and Faneuil, conspired to mislead investigators.

These assertions are more complicated than the $60 agreement. Rather than discuss them as concepts, therefore, I'll just go through them on a charge-by-charge basis in the next dispatch.

Clarification: In yesterday's dispatch, I wrote, "All of the crimes that Stewart and Bacanovic allegedly committed were a direct result of an investigation into a crime that they didn't commit (criminal insider trading)." A reader questioned the accuracy of the last statement, which, I admit, should have been clearer.

The phrase "a crime that they didn't commit" referred to the initial theory of Stewart's ImClone sale: that she sold after being tipped about the rejection of ImClone's Erbitux application. This would have constituted classic insider trading and probably resulted in a criminal charge. The Erbitux-tip theory, however, has since been dropped. As I have explained in previous dispatches, the SEC has filed separate civil insider trading charges, which carry a lower burden of proof and don't involve jail time, against Stewart for selling ImClone after learning of the Waksal sale (as distinct from the Erbitux information). Technically, the Waksal sale information is not "inside" information but a form of "market" information. The distinction? "Inside" information pertains to the operations and/or performance of the company; "market" information pertains to the demand for the company's stock. In this case, the issue is complicated by the theory that Stewart could infer inside information—the Erbitux rejection—from the Waksal sale. I would argue that, especially to a CEO like Stewart, who was used to selling stock in her own company for reasons other than impending disaster, the Waksal sale information was not as material as the government is making it out to be.

Historically, the type of "market" information Stewart received has not been prosecuted as illegal to trade on. If this civil suit against Stewart is successful, therefore, it will expand the established bounds of insider trading.

Henry Blodget is the founder, editor, and CEO of Business Insider. Follow him on Twitter.