MEANWHILE, HERE'S WHAT THE NEW YORKER DOES WELL:

A BAD THING: Why did Martha Stewart lose? (JEFFREY TOOBIN, 2004-03-15, The New Yorker)

Peter Bacanovic, Stewart’s broker at Merrill Lynch, was, like almost everyone else, just trying to keep Martha Stewart happy. On December 27, 2001, while he was on vacation in Florida, he heard from his assistant, Douglas Faneuil, that another of his clients, Sam Waksal, the chairman of ImClone, was trying to get rid of virtually all his own and his family’s stock in the company. Bacanovic knew that Stewart owned ImClone stock—Stewart and Waksal were close friends—and he told Faneuil to call her and let her know. [...]

Stewart’s trades that day were small compared with Sam Waksal’s. After learning that the Food and Drug Administration was going to reject ImClone’s most important product, a cancer drug called Erbitux, Waksal tried to move 79,797 shares to his daughter Aliza’s account through Bacanovic; Aliza herself sold 39,472 shares; his other daughter, Elana, sold 3,014. Waksal’s father sold 135,000 shares, and his sister sold 1,336. Not surprisingly, in light of the F.D.A.’s decision, which was announced the following day, the Waksals’ sales drew the attention of an internal auditor at Merrill Lynch, who asked to see Bacanovic as soon as he got back from Florida.The auditor, Brian Schimpfhauser, also noticed Stewart’s sale of ImClone, and, he later testified, “that made me kind of suspicious.”

A small problem now started to get bigger. Bacanovic had to come up with an explanation for why Stewart had sold at the same time as the Waksals. When Faneuil saw him after the New Year, Bacanovic first said that Stewart had sold ImClone as part of an end-of-year practice called “tax loss selling.” But that made no sense, because she had sold at a profit. So Bacanovic decided to tell the investigators that he and Stewart had a preëxisting agreement to sell her ImClone stock when the price reached sixty dollars a share, which it did on December 27th.

For a while, it looked as though this story might hold. Merrill Lynch had referred the Waksal case to the S.E.C., and the government’s investigators were putting together an easy insider-trading case against him. Because of the focus on the Waksal case, investigators were most concerned with whether he had tipped Stewart or anyone else about the imminent F.D.A. decision on Erbitux. Since Waksal himself hadn’t told Stewart, she had every reason to think she had no problem. On January 16, 2002, Bacanovic and Stewart met for breakfast, and it’s probable that they discussed the burgeoning investigation of the ImClone sales—and their possible culpability. Within a week, Stewart had decided to hire a criminal-defense attorney.

When Martha Stewart Living Omnimedia went public, in 1999, the company used the law firm of Wachtell, Lipton, Rosen & Katz for corporate work. Wachtell, Lipton is smaller than many of the better-known firms in the city, but it has the highest profits per partner of any law firm in the nation—on average, more than three million dollars a year. Lawyers there tend to be brilliant and arrogant; typical among them is John Savarese, the lawyer whom Stewart hired in January, 2002. Like Bacanovic, Savarese is good-looking and socially prominent. He had earlier been a prosecutor in Manhattan, and in 1986 he helped convict the reigning bosses of the city’s five Mafia families. (Just before that trial, I worked for him as a summer intern.)

On January 25th, Michael Schachter, the Assistant U.S. Attorney in charge of the Waksal investigation, spoke to Savarese and asked to interview Stewart about the ImClone sale. Savarese had to evaluate this request in a transformed legal landscape of white-collar criminal law. Even before the Enron scandal, which was just then unfolding, the Justice Department and the S.E.C. had been placing tremendous pressure on corporate executives to coöperate with their investigations. The S.E.C., and even private auditors, might hesitate to certify the financial statements of a company headed by someone who wouldn’t coöperate. A directive to prosecutors from Deputy Attorney General Larry D. Thompson suggested that companies should pressure senior employees to testify rather than refuse to answer on Fifth Amendment grounds.

Stewart was travelling a lot in late January, so there wasn’t much time for her to talk to Savarese, but she seemed nonchalant about the prospect of sitting down with Schachter and his colleagues. She and Savarese tentatively agreed to meet with the prosecutors on February 4th. “There was a lot of pressure, including from Martha, that she go in there and show she had nothing to hide,” one person close to the Stewart camp says. “All she thought they wanted to talk about was whether Waksal himself had tipped her about the F.D.A. decision. She knew she was in the clear on that one.”

On January 31st, something happened that should have signalled the magnitude of the risk of letting the government question Stewart. Around five in the afternoon, Stewart and Savarese spoke for half an hour on the telephone. When Stewart hung up, she asked her secretary, Ann Armstrong, to call up her computer’s phone log for December 26th through January 7th. As Armstrong later testified at Stewart’s trial, Stewart examined the messages and noted the one from Bacanovic on December 27th, which read, “Peter Bacanovic thinks ImClone is going to start trading downward.” Armstrong described what happened next: “Martha saw the message from Peter, and she instantly took the mouse and she put the cursor at the end of the sentence, and she highlighted it back up to the end of Peter’s name, and then she started typing over it.” She changed the message to “Peter Bacanovic re imclone.”

Stewart then had second thoughts, Armstrong continued. “She instantly stood up, and still standing at my desk, she told me to put it back. ‘Put it back the way it was.’ She walked back to her office door, and by the time she got to her office door she asked me to get her son-in-law on the phone.” Alexis’s husband, John Cuti, was a litigator who sometimes worked for Stewart and her company. He said to Armstrong, who became increasingly upset, “Stop in your tracks,” and told her not to change anything else. When Armstrong got home that evening, Stewart called and asked if she had been able to restore the message. Ultimately, with the help of a friend, Armstrong was able to find the original message and fax a copy to Savarese. The next morning, Stewart left for a quick trip to Germany, which would get her back just before her interview at the U.S. Attorney’s office.

Cuti told Savarese about the altering of the document, which suggested that Stewart was worried about the appearance, at least, of the ImClone transaction, if not the legality of her actions. But she was out of the country, and there was no way to get her ready for the interview. To make matters worse, Savarese had not gone over her phone logs with her.

Savarese could have delayed Stewart’s appearance. He could have gathered all the relevant documents and forced her to test her recollections against the physical evidence. “It’s not easy telling someone like Martha Stewart to take the Fifth,” a lawyer inside the Stewart camp says. “She would have gone ballistic.” Instead, Savarese sent into the hands of prosecutors an underprepared witness, who may not have told him the whole story, and who had already tried to doctor evidence in the case. “What Savarese did was an unbelievable disaster,” another person in the defense camp told me.

It just doesn't seem like that hard a principle to grasp that you aren't allowed to tamper with evidence and lie to authorities.

MORE:
-Everywoman.com (Joan Didion, 2000-02-21, The New Yorker)

According to “The Web Guide to Martha Stewart—The unofficial Site!,” which was created by a former graduate student named Kerry Ogata as “a thesis procrastination technique” and then passed on to those who now maintain it, the fifty-eight-year-old chairman and C.E.O. of Martha Stewart Living Omnimedia L.L.C. (“MSO” on the New York Stock Exchange) needs only four hours of sleep a night, utilizes the saved hours by grooming her six cats and gardening by flashlight, prefers Macs in the office and a PowerBook for herself, commutes between her house in Westport and her two houses in East Hampton and her Manhattan apartment in a G.M.C. Suburban (“with chauffeur”) or a Jaguar XJ6 (“she drives herself”), was raised the second-oldest of six children in a Polish-American family in Nutley, New Jersey, has one daughter, Alexis, and survived “a non-amicable divorce” from her husband of twenty-six years, Andrew Stewart (“Andy” on the site), who then “married Martha’s former assistant who is 21 years younger than he is.”

Contributors to the site’s “Opinions” page, like good friends everywhere, have mixed feelings about Andy’s defection, which occurred in 1987, while Martha was on the road promoting “Martha Stewart Weddings,” the preface to which offered a possibly prescient view of her own 1961 wedding. “I was a naïve nineteen-year-old, still a student at Barnard, and Andy was beginning Yale Law School, so it seemed appropriate to be married in St. Paul’s Chapel at Columbia in an Episcopalian service, mainly because we didn’t have anyplace else to go,” she wrote, and included a photograph showing the wedding dress she and her mother had made of embroidered Swiss organdy bought on West Thirty-eighth Street.

Posted by Orrin Judd at March 16, 2004 3:34 PM