Strike Those Boneheaded Phone Calls
Reports on the antitrust suit.
Jan. 7 2004 2:24 PM


Indictment "tuned up" as jury selection begins
Indictment "tuned up" as jury selection begins

Hundreds of prospective jurors for United States v. Martha Stewart and Peter Bacanovic filled out questionnaires this week in a pre-screening process that will reduce the pool to dozens. The questionnaire hasn't been released (and Judge Miriam Cedarbaum has intimated that reporters who beg prospects for tidbits about what was in it will be hurled into the stockade). Nonetheless, it seems safe to assume that the government wants jurors who:

  • Lost their shirts in the market crash
  • Believe that "insiders" knew the market was going to crash—and sold first
  • Believe that most corporate executives are greedy shysters
  • Believe that celebrities will do anything to get and stay famous and rich
  • Hate Martha Stewart.

The defense, meanwhile, presumably wants jurors who:

  • Have been falsely accused of crimes
  • Recognize that investigators and prosecutors like getting promoted, too
  • Understand that even "insiders" don't know what the market is going to do
  • Know rich, famous people and understand that the only difference between them and everyone else is that they have money and fame
  • Love Martha Stewart.


After the questionnaires are evaluated and most of the pool is rejected, the selection process will continue with interviews on Jan. 20. Trimming the pool to 12 is then expected to take an additional week or so.

In other news, the U.S. attorney's office has filed a "superseding indictment" that replaces the original indictment. As has been reported, no charges were added or dropped, and the filing of "tuned up" indictments before trial is not unusual. That said, the changes were more than cosmetic. The U.S. attorney had to go to the trouble of getting a grand jury to approve the edits, so it's worth having a close look at what they might signify about the case.

In addition to fixing some typos and adding the words "and misleading" to further describe statements by Stewart and Bacanovic previously labeled simply "false," the U.S. attorney struck three "overt acts" that had previously been cited as support for the alleged Bacanovic-Stewart conspiracy. Among these are the calls Stewart placed to Bacanovic just prior to his SEC testimony on Feb. 13, calls that, in a previous dispatch, I described as "agonizingly boneheaded." I thought these calls might be a big problem for Stewart's defense team. In another change, several lines of testimony were added to the quotes supporting Bacanovic's alleged perjury. Lastly, the government struck two paragraphs that described the action of Martha Stewart Living Omnimedia's stock price after Stewart released her explanation for her ImClone trade.

What these changes boil down to, in my opinion, is that the "conspiracy" charge is weaker than it seemed in the original indictment (which could be very important). Let's take the changes one by one.

First, the following three "overt acts" were struck as evidence of the conspiracy:

  1. On Jan. 16, 2002, about a week after the SEC's initial interview with Bacanovic, Stewart and Bacanovic had breakfast together;
  2. On the afternoon of Feb. 12, the day before Bacanovic's SEC testimony, Stewart "placed multiple telephone calls from her home to Bacanovic's office"; and
  3. The next morning, Feb. 13, immediately prior to Bacanovic's SEC testimony, Stewart placed one additional call to his office.

The elimination of these events from the indictment doesn't mean they didn't happen. What it probably does mean is that the prosecution either no longer believes, or at least no longer believes it can prove, that these were "overt acts" that support the conspiracy charge. This weakens the conspiracy theory, and the conspiracy theory is a critical concept underlying all the other charges. If Stewart and Bacanovic didn't conspire to fabricate the $60 agreement, then the $60 agreement almost certainly existed, and if the $60 agreement existed, Stewart and Bacanovic can probably look forward to a sweet, rapid acquittal.

Second, the government added approximately a dozen lines of testimony to Specifications 2 and 4 of Bacanovic's perjury charge. On its own, the Specification 2 addition is mysterious: The lines simply contain Bacanovic's recollection that he and Stewart might have discussed Sam Waksal during the period that they claimed not to have talked about the investigation of Stewart's ImClone trade, and the government doesn't claim the statements were perjured. The reason for adding the lines to Specification 4 is clearer: Some of them were allegedly perjured, and, from the government's perspective, the more perjury the better. In these lines, Bacanovic asserts that he did not make reference to "any transaction or any person" when telling Stewart about Merrill Lynch's internal examination of ImClone trades. Perhaps, then, the reason the lines were added to Specification 2 about the possibility that Bacanovic and Stewart talked about Waksal was to suggest a contradiction between these statements and the new Specification 4 statements.

Lastly, the government struck two paragraphs from the "Securities Fraud" charge that described the action of Martha Stewart Living Omnimedia stock on June 13 and June 19—the first trading days after Stewart released her allegedly false explanations for the ImClone trade. The government wanted to show that Stewart's statements inflated the stock price, which would support the case that the statements were "material" (a prerequisite for securities fraud). The problem in the original indictment—as Stewart's motions memorandum indignantly observed—was that the price quotes were selective. The indictment, for example, cited the fact that MSO opened up on June 13 as evidence that Stewart's post-close June 12 statement was material (defrauded investors believed the lie and bought the stock!). Later that same day, however, the stock closed down. Using the government's (original) logic, the closing price suggests that Stewart's statement was immaterial.



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