Martha follows Nixon | SierraSun.com

Martha follows Nixon

Law Review, Jim Porter

Martha Stewart pulled a Richard Nixon. Richard Nixon resigned from office not because of what he did initially, but for covering up his relatively minor offense. Nixon compounded his problems and it cost him the presidency.

The smoking gun

Martha Stewart did the same thing. Her cover up (details below) caused her to resign as chairwoman and CEO of Martha Stewart Living Omnimedia (MSLO on the exchange). It has also brought her a federal indictment for perjury, securities fraud and obstruction of justice as well as a civil lawsuit filed by the Securities and Exchange Commission seeking to bar her from ever running a public company.

The indictment is fascinating reading. You will want to read all 41 pages – Coming this summer on Court TV. Check http://www.thesmokinggun.com/ archive/martha

Martha is looking a lot older than her 61 years.

The indictment

The indictment reads like a dime store novel. Martha’s Merrill Lynch stockbroker, Peter Bacanovic, was well aware of Merrill Lynch’s policy against “piggybacking”: Buying, selling or recommending a security after a client bought or sold the same stock to take advantage of that clients’ knowledge or expertise.

Samuel Waksal and his family owned ImClone, which traded around $61 a share on Dec. 27, 2001. Unbeknownst to the rest of the world, ImClone’s much-touted anti-cancer product Erbitux was about to be rejected by the FDA, which would cause ImClone stock to tumble. Bacanovic’s assistant informed him that the Waksal family was selling all of its stock – worth more than $7 million (Waksal has been charged with insider trading). Bacanovic told his assistant to let Martha Stewart know, and indeed the assistant left a voicemail for Martha that “Peter Bacanovic thinks ImClone is going to start trading downward.”

On Dec. 27, 2001, at 1:39 p.m. Martha called Bacanovic and spoke with his assistant. She was (improperly) informed that the Waksal family was selling its ImClone stock. Martha then made a mistake, the first of several. She ordered her ImClone stock sold immediately.

The next day ImClone issued a press release announcing that the FDA had refused to accept its wonder drug Erbitux for filing. ImClone dipped 18 percent. The difference to Martha was $45,000. A measly $45,000 crippled her empire.

Scheme to obstruct justice

Martha was not charged with insider trading. In fact she did not have knowledge about Erbitux, only that the Waksal family was selling its stock. Martha probably could not have been convicted of insider trading. But that is not the end of her story.

Martha is charged with obstructing justice by allegedly concocting a story with Bacanovic that they had agreed to sell her shares of ImClone if it dipped below $60 per share, when, according to the government, there was no such agreement. She is also charged with altering Bacanovic’s assistant’s voicemail message from “Peter Bacanovic thinks ImClone is going to start trading downward,” to “Peter Bacanovic re ImClone.” After she was under investigation, she returned the message to its original wording. No harm, no foul.

Martha also is charged with perjury for telling the Securities and Exchange and the FBI that she had spoken to Bacanovic when in fact she had spoken to his assistant and for claiming she had a standing sale order on ImClone.

Altered work sheet

Bacanovic is charged with obstructing justice and for altering a worksheet he had prepared of instructions from Martha Stewart to sell certain stocks. Specifically for adding, “ImClone at 60.”

The indictment claims Bacanovic used ink that was blue ballpoint, scientifically distinguishable from the ink from the original worksheet. If true, Peter Bacanovic pulled a Richard Nixon, which cost him his career (until he writes his tell-all book).

Fraud on MSLO stockholders

In a remarkable display of over-charging, Martha was also charged with “fraud and deceit upon purchasers and sellers of MSLO common stock” for issuing press releases proclaiming her innocence – purportedly restating the “concocted” story with Bacanovic.

I am innocent

Martha is fighting back and has pleaded not guilty to all charges. As she wrote, “I simply returned a call from my stockbroker.”

Martha’s 2003 Calendar

For you Martha junkies, here is Martha’s June 4 (indictment date) “To Do” list from her popular calendar: “Clean clothes dryer vents; replace its hoses. Weekly maintenance of bird baths; fill daily.” Here is today’s calendar entry: “Fix strawberries, wash jelly jars and make jam. Download and print clip-art jam labels.”

Here is tomorrow’s: “We all make mistakes. Do the right thing, even if you screw up. Be able to look at yourself in the mirror; don’t pull a Richard Nixon.”

Jim Porter is an attorney with Porter–Simon, with offices in Truckee, South Lake Tahoe and Reno. He may be reached at porter@portersimon.com or at the firm’s Web site http://www.portersimon.com