http://www.businessweek.com/stories/2004-03-07/the-system-served-martha-an-injustice

The System Served Martha an Injustice


By Diane Brady The trial of Martha Stewart was always about more than telling the truth. But the case never should have ended up in criminal court, much less with felony convictions on four counts. By plowing ahead with obstruction of justice, conspiracy, lying, even securities-fraud charges without accusing her of a serious underlying crime, the U.S. Attorney's office has twisted a potent weapon that's supposed to preserve justice -- not undermine it (for a contrary view, see ""Martha Cooked Her Own Goose", and ""Please, No Tears for Martha").

Sure, misleading investigators can be serious business. But in a democracy with a Bill of Rights, so is the government threatening to deprive people of their liberty. Such devastating consequences should be reserved for dealing with significant breaches of the law. Instead, prosecutors abused their power to make an example of someone whose transgression could have been aptly punished through other means.

OUTSIZED PUNISHMENT. The legal case against Martha Stewart was suspect from the moment the charges were handed down. Despite more than a year of very public probing, federal prosecutors never slapped Stewart with insider trading charges for selling her ImClone (IMCL) shares after allegedly learning that CEO Sam Waksal was doing the same.

Even if she did get a tip from her broker, many believe that was nothing illegal. Stewart sold on a day when ImClone's stock lost 8% of its value and more than 7.7 million shares changed hands. She never spoke to a company insider. Nor does anyone assert that she knew why Waksal was selling. Still, when questioned, she apparently panicked and concocted a dubious tale of a verbal agreement with her broker to sell at $60.

Yes, Stewart should be punished. But not with 20 years in prison and $1 million in fines. Even one year behind bars, which is likely the sentence she'll get in June, is too much for her feeble excuse and panicked reaction to the Feds' investigation.

And let's not forget the securities-fraud charge -- levied against Stewart on the grounds that she lied to bolster the price of the shares in her own company, Martha Stewart Living Omnimedia (MSO). That would have added another decade in possible prison time had Judge Miriam A. Cedarbaum not tossed it out on Feb. 27. Three decades of one's life behind bars -- for supposedly lying about something that was never deemed to be a crime.

NO ONE HARMED. Stewart's behavior could have been justly redressed with civil penalties. The Securities & Exchange Commission has a powerful arsenal of its own -- and it's still trained on her. The SEC could impose hefty fines and bar her from ever serving as a director or executive officer of a public company. Her decision to relinquish the chairman and CEO posts after charges were laid out could simply be made permanent. Surely such a humiliation would stoke sufficient fear in the executive suite.

Using the criminal justice system to make the point -- or to deter others -- is overkill. It's not as though Stewart's actions shook the foundations of American capitalism. This was no Enron (ENRNQ), laying waste to billions of dollars of shareholder value. Martha Stewart didn't cook the books. She didn't loot her company. Nor did she set out to dupe her investors. As Thomas E. L. Dewey, a securities litigator at Dewey, Pegno & Kramarsky, notes: "It's hard to see what harm has been visited on people by her actions."

Has the Justice Dept. sent a powerful message to the American people? You bet. But it's less about the perils of lying than the dangers of an overzealous government bent on hauling a celebrity CEO into court. Brady is an associate editor for BusinessWeek


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