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dispatches from the martha stewart trial:

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from: Henry Blodget

The "Cover-Up," Part 3: Martha Stewart Visits the U.S. Attorney

Updated Tuesday, Dec. 9, 2003, at 2:55 PM ET

Henry Blodget, a former securities analyst, lives in New York City. Read his full-disclosure statement about his potential conflicts of interest in covering the Martha Stewart trial here. For a complete listing of Blodget's dispatches, see Slate's Guide to the Martha Stewart Trial, which also has links to related Slate articles.

Bacanovic: The $60 question

On Monday, Feb. 4 at 7:09 a.m., Peter Bacanovic placed a call of unspecified duration from his cell phone to Martha Stewart's. Later that morning, Stewart and her attorneys met with the U.S. attorney, SEC, and FBI in New York. Stewart wasn't placed under oath, and the conversation was neither recorded or transcribed. Instead, an FBI agent took handwritten notes, which were later typed into a summary.

In the interview, Stewart allegedly, with the "intent and purpose" of covering up, concealing, etc., made the following false statements, which would eventually constitute Count 3: "False Statements By Martha Stewart."

  1. At a time when ImClone was trading at $74 per share (the only time this happened in 2001 was Dec. 5-6), Stewart and Bacanovic decided that she would sell her ImClone if it fell to $60 per share (allegedly a lie because the $60 agreement didn't exist).
  2. On Dec. 27 at approximately 1:30 p.m., Stewart spoke to Bacanovic, who said ImClone was trading below $60 and asked her if she wanted to sell, and she told him to sell her shares (allegedly a lie because she spoke to Faneuil).
  3. Stewart did not recall speaking with Bacanovic's assistant that day (allegedly a lie because she did recall this).
  4. Stewart and Bacanovic also discussed Kmart and Martha Stewart Living Omnimedia on the same call on the 27th (allegedly a false embellishment to cement the idea that she talked to Bacanovic, not Faneuil).
  5. Stewart sold her stock because she didn't want to be bothered over her vacation (allegedly a lie because she sold after being told about the attempted Waksal sale).
  6. Stewart did not know if there was a message from Bacanovic on Dec. 27 in the phone log her assistant maintained (allegedly a lie because she did know).
  7. From Dec. 28 to the date of the interview Stewart had only one conversation with Bacanovic about ImClone, and they discussed only public information.
  8. Bacanovic told Stewart in a telephone conversation that Merrill Lynch had been questioned by the SEC with regard to ImClone, but did not mention that he himself had been questioned by the SEC or that the SEC had specifically asked about Stewart's account (allegedly a lie because she and Bacanovic had discussed these subjects and conspired to mislead investigators).

Observations: First, because this interview, along with Stewart's second one, was neither recorded nor transcribed, all of the statements are not just alleged to be false, they are also, essentially, alleged to be statements. Although the FBI agent who took notes was presumably well-trained, he or she was not expected to record the conversation verbatim. Judging from the (il)legibility of a few chicken-scratch notes (see Page 73) Stewart's attorneys have released from the second interview, combined with the rephrasing of these notes in the typed summary (see Page 72) , I imagine that, before challenging the statements' alleged falsity, Stewart's attorneys might attempt to create reasonable doubt that Stewart even made them. It is also, of course, likely that Stewart's Wachtell attorneys took notes or created summaries of the meetings (an affidavit from Jack Tigue—see Page 6—one of Stewart's attorneys, states that the FBI agent was the only government representative taking notes of the interviews, not the only person), and these might offer a different version of the conversations. If Stewart's attorneys were called to testify about this subject, questions would have to be confined to what Stewart said in the interviews, or the government might argue that she had waived attorney-client privilege.

Second, two of the statements (No. 3 and No. 6) are of the "I don't recall/remember" and "I don't know" variety. Although it is hard to believe that, four days after she altered the Dec. 27 message from Bacanovic and then asked her assistant to unalter it, Stewart "didn't know" whether it was in the phone log, it is also hard to believe that a jury would convict her on the basis of an evasive answer that wasn't recorded or made under oath. Third, one of the statements (No. 1) regurgitates the story about the $60 understanding. For reasons that I will go into, I am inclined to believe that this understanding did exist, albeit in an informal form. Statement No. 5—that Stewart sold her stock because she didn't want to be bothered over her vacation—also seems plausible, or at least hard to prove false (she didn't claim it was the only reason). Statements No. 7 and No. 8, which assert that Stewart and Bacanovic never discussed the specifics of the ImClone investigation, are harder to believe given Stewart's call to Bacanovic after the investigators contacted her and Bacanovic's call to her before her interview. This said, we don't yet know how often Stewart and Bacanovic normally spoke or how long these two calls lasted, and the burden will be on the prosecutors to prove that Stewart and Bacanovic did, in fact, discuss the details of the investigation. Which brings us to the statements that, in my opinion, are, from Stewart's perspective, most problematic.

Statements No. 2 and No. 4 get at the same (false) concept that appeared in Bacanovic's interview—that Stewart placed her sell order with Bacanovic, not Douglas Faneuil. Although either Stewart or Bacanovic might have mistakenly recalled or misstated this fact, it seems unlikely that both would have done so (at least at this point in the story—later events make it more plausible). Again, because of Faneuil's alleged role, Stewart and Bacanovic had a motive to keep the focus off him, even if they regarded the ImClone sale as legal. Because they each allegedly made the same error, moreover, the "conspiracy" theory gains credence (Count 1: "Conspiracy to Obstruct Justice, Make False Statements, and Commit Perjury"). And unlike the other statements Stewart allegedly made on Feb. 4, "I spoke with Bacanovic" is, likely, demonstrably false.

dispatches from the martha stewart trial
entries
12345678910111213
from: Henry Blodget

The "Cover-Up," Part 3: Martha Stewart Visits the U.S. Attorney

Updated Tuesday, Dec. 9, 2003, at 2:55 PM ET
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Henry Blodget is the editor of Silicon Alley Insider.
Photograph of Martha Stewart (Nov. 20) by Peter Morgan/Reuters. Photographs of: Stewart and Sam Waksal by Chip East/Reuters; Douglas Faneuil by Doug Kanter/Agence France-Presse; and Peter Bacanovic by Stan Honda/Agence France-Presse (Dec. 3). Photograph of Martha Stewart by Anthony Bolante/Reuters (Dec. 19).
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Remarks from the Fray:

Prosecution could have brought attention to insider trading without a full blown witch hunt attitude. Martha may have had sweet deals whispered in her ears and responded but isn't that more common than we would like to admit? Since she is not being charged with the insider trading the decision to charge her for an obscure related crime is probably not a good idea.

Martha should have spilled the beans immediately as the amount we are talking about is minuscule to her wealth but there was more at stake in poor publicity so she made a serious mistake in judgment. Charge her for being stupid so everyone can move on.

That mistake empowered the government and the SEC who were under staggering pressure from the Enron situations to go for the throat of someone, or anyone but should they have picked Martha? I think the answer is no simply because instead of exonerating the SEC and government, it only spotlights the weakness of the enforcements and laws. The Ken Lay's of the CEO world walking around after cheating people of millions if not billions simply because no provable law has been broken becomes highlighted by the pack attack of one woman being destroyed with something akin to joy...

--Meta4

(To reply, click here)


While I agree that there are parts of the case against Martha that are hard to understand, Blodget's theorizing on her behalf seems quite implausible. Sure, it was possible that Stewart and her brokers discussed the sale without transmitting any material nonpublic information. But think about it: Why would she buy shares in Waksal's company using Waksal's own broker, and call that very broker about selling decisions, if she didn't hope to get inside information?

For Stewart to be innocent, the call would have to go something like this: "Douglas, this is Martha. Before you say anything, shut up and listen. You know I'm calling about ImClone. I know that you are Sam's personal broker. This means that you must be very careful not to divulge any material information you have learned from Sam, not even in a wink-wink-nudge-nudge way, because then I might be guilty of insider trading. Instead, I want you to pretend you are not Sam's broker, and please give me only publicly available information. Oh, and please don't think it's strange that I'm calling you about selling at 59 after having previously instructed you to sell at 60." Not very likely.

--Scythe

(To reply, click here)

(12/4)