It's not the crime; it's the cover-up.
Corporate executives ignore that shop-worn maxim of white-collar crime too often when they get ensnared with the law, and do so at their peril, legal observers said yesterday.
A Manhattan jury found Friday that Martha Stewart forgot that truism when she lied to federal investigators in early 2002 about a questionable stock trade. As a result, she is now facing jail time even though she was never charged with the underlying insider trading.
"There's a simple message here -- don't talk to the government if you are going to lie," said New York lawyer Leslie Crocker Snyder, a former prosecutor and judge.
"Martha Stewart had a certain amount of hubris and felt she could say whatever she wanted and there would be no consequences. That is typical for people involved in white-collar crime."
Critics of the government's case against Ms. Stewart complained that it was outrageous that she would be prosecuted for obstructing an investigation that never led to charges for the alleged offence with which the Federal Bureau of Investigation, the Department of Justice and the Securities and Exchange Commission were initially concerned.
But that is not unusual. Richard Nixon was never charged with the Watergate break-in but his cover-up of the White House's involvement in the "third-rate burglary" cost him his presidency and might have led to criminal charges had his successor, Gerald Ford, not pardoned him.
More recently, Frank Quattrone, the former Credit Suisse First Boston investment banker, stood trial for obstructing agency proceedings when he told employees to clean out their e-mail files, even as the SEC was investigating charges the company had taken improper payments from companies issuing new stock. Mr. Quattrone has not been charged with an underlying crime but, after a hung jury this fall, faces a new trial later this spring on the obstruction charge.
Ms. Snyder noted that many current corporate scandals before the courts have far more substantive crimes at their core.
As examples, he cited Enron Corp., WolrdCom Inc. and Adelphia Communications Corp. But even in those cases, executives face additional charges related to their efforts to cover up the original malfeasance.
On the steps of the neoclassical federal courthouse, just a few blocks from Wall Street, David Kelley, the acting chief federal attorney in New York, echoed the argument that his prosecutor, Karen Seymour, made to the jury in her opening statement: that the government has a keen interest in prosecuting those who lie and seek to cover up potential illegal activity.
The message of the verdict is that dishonesty and corruption won't be tolerated, and Corporate America should "beware," Mr. Kelley said.
He said that the case against Ms. Stewart and her former Merrill Lynch & Co. broker, Peter Bacanovic, was all about the lies they told to the FBI and the SEC.
"The victims in this case are the entire American public, who rely on the integrity of our system to make sure justice is done," Mr. Kelley said.
Certainly, Ms. Stewart would have gotten off far more lightly if she had confessed at the outset that she had received a tip from her broker that her friend, Sam Waksal, was dumping his shares in ImClone Systems Inc.
The FBI and SEC were mainly concerned about Mr. Waksal -- who sold his shares the day before the federal drug regulator issued a negative report on his company's leading cancer drug. Mr. Waksal is now serving a seven-year term for insider trading.
But Ms. Stewart's trade was far less offensive -- she was not an insider in ImClone, there was no allegation she knew about the imminent government report, and she had been given the information by her stock broker at Merrill Lynch & Co.
(She still faces a civil complaint from the SEC for her trade in ImClone shares, but that charge carries no jail term.)
Amid the heightened concern about corporate scandal, it is perhaps not surprising that she feared that prosecutors would throw the book at her, so she instead rolled the dice and decided not to tell investigators about the tip but offered an alternative version that the jury rejected as a fabrication.
In a clear tactical blunder, her lawyer, Robert Morvillo, waited until his closing argument to concede that she had been told of the Waksal trade, even though he knew that one of Ms. Stewart's best friends, Marianne Pasternak, was to testify that the homemaking diva confided that information to her while they were on vacation in Mexico.
Jurors said Ms. Pasternak's testimony was key to the decision to convict. They also criticized what they saw as Ms. Stewart's haughty approach to the proceedings: her refusal to testify; Mr. Morvillo's decision to call only one witness; his argument that she was simply too smart to make the mistake the prosecution accused her of, and the appearance in the court of her celebrity friends.
Jurors who spoke to reporters on Friday insisted that they relied on the evidence to reach their verdict. However, they also made it clear Ms. Stewart's elevated position in society did not help her cause.
Some observers argue Ms. Stewart would never have been prosecuted if she had not been a woman -- that government lawyers were looking to feather their caps by bringing down a female celebrity.
"It's hard to imagine a male in precisely this spot," Mary Becker, a law professor at DePaul University College of Law, told The New York Times. "Targeting a successful woman is very consistent with dominant cultural values."
Mr. Kelley said the government prosecuted her because of what she did, not who she was.
And Ms. Snyder said the suggestion that Ms. Stewart's gender played a role in the prosecution is "offensive to women."
She noted that most of the executives facing trial as a result of the corporate scandals are men.
"If we want to be equal in terms of what we are paid and the responsibilities we are given -- and we still have a ways to go there -- then we also have to be equal in taking the fall."