by John M. Curtis
(310) 204-8700

Copyright January 21, 2004
All Rights Reserved.

lamorous lifestyle maven Martha Stewart stepped into a federal courtroom in Manhattan pleading “not guilty” to the government's case, accusing her and her stockbroker Peter E. Bacanovic of securities fraud and obstruction of justice, stemming from her Dec. 27, 2001 sale of 3928 shares of ImClone Systems Inc., after getting tipped off by its CEO Samuel D. Waksal that its genetically engineered drug Erbitux would not win FDA approval. Though Waksal sits in prison serving out a seven-year sentence, Stewart and Bacanovic insist that the former model and New York socialite had a standing stop-loss order that just happened to be executed on the exact day Waksal dumped his family stock. Unfortunately for Stewart, Bacanovic's assistant, Douglas Faneuil, already pleaded guilty to a misdemeanor of “taking gifts,” after following Bacanovic's instructions to sell Stewart's stock.

      Stewart has railed against Manhattan's U.S. Atty. for scapegoating her in the wake of high profile corporate scandals. Stewart's attorney, Robert G. Morvillo contends that government would not have pursued his client without her celebrity. “Martha Stewart is being prosecuted not because of who she is but because of what she did,” said James B. Cooney, a former U.S. Atty., now No. 2 man at the Justice Department, rejecting the defense's claim that the government's case is largely hot air. If it were not for Faneuil, Stewart and Bacanovic might have skated by. But with Faneuil's testimony, it's going to be a tough sell convincing a jury that Stewart's stock transaction was entirely coincidental. Bacanovic had just completed dumping Waksal's shares before he told Faneuil to contact Stewart—yet Bacanovic insists that Stewart had a standing stop-loss order.

      At the time Stewart dumped her shares, she was worth nearly $600 million, leaving fair-minded people scratching their heads. According to public records, she saved $45,673 selling her stock, before the FDA rejected ImClone's Erbiux the very next day. Her savings was worth a little more than a week's worth of attorney' fees. Yet to save pennies on her net worth, she risked trashing her entire career. While Waksal might have panicked about going broke when he got the bad news, Stewart had no excuse other than neurotic greed. At some point, Morvillo will have to decide whether Stewart should testify in her own defense. Unless Faneuil cracks, Stewart will have to pull a rabbit out of her hat, mesmerizing jurors with her celebrity and public persona. Morvillo must weigh the government's case against Stewart's ability to charm and influence jurors—a real crapshoot.

      Since getting indicted in June, Stewart has been busy engaged in her own publicity blitz, countering disastrous notoriety. Appearing on “Larry King Live” and granting primetime interviews with Barbara Walters, gives Stewart the chance to tell her story. Beyond that, public interviews cement the impression that the 62-year-old entrepreneur couldn't possibly be guilty of the alleged charges. “When the client is so accomplished and skillful in so many areas, it is very hard to tell them that their instincts are wrong,” said Laura Ariane Miller, a criminal defense lawyer who believes that Martha's celebrity will give her added clout with the jury. Defense attorneys must pick jurors that have subtle biases against the government, or, for that matter, tend to put halos around celebrity clients. Either way, methodical jury selection gives the defense the upper hand.

      Movillo must convince a jury that, despite Faneuil's testimony, Stewart could not have engaged in fraud and obstruction of justice. Her attorney will have to argue that her $228,000 stock sale, only one day before the ImClone's stock tanked on the FDA's bad news, was purely coincidental. Movillo will also have to convince jurors that Bacanovic's assistant is either lying or oblivious to Stewart's secret stop-loss order with her long-time broker. With Waksal already doing time for insider trading, it's going to be tough persuading jurors that Stewart's case was an entirely unrelated. While there's no smoking gun, Faneuil provides devastating firsthand testimony about the sequence leading Stewart dumping ImClone shares. Movillo has a tough job selling jurors that Stewart was a victim of a government setup. No matter who's selected, Movillo will have to perform some fancy footwork.

      Before opening arguments, no one has explained why the multimillionaire lifestyle queen would trash her life for a measly $45,673—a drop in the bucket to her estimated $600 million net worth. Facing 30-years in prison and $2-million fine, Stewart has some explaining to do to convince jurors her stockbroker executed as stop-loss order at $60 a share—the same day her good friend ImClone CEO Sam Waksal ordered Bacanovic to dump millions of his family's holdings. With Douglas Faneuil expected to testify that he told Stewart to sell her ImClone shares because Waksal was liquidating his stock, her stop-loss story may not fly. While down to the wire, it's still not too late to strike a plea bargain before she tests her charm—or arrogance—with jurors already leery of big-time celebrities. Unless her attorney has an ace up his sleeve, she'd better come to her senses.

About the Author

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.

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