Re: Butterfly Broken on Wheel, (Derbyshire of NRO)

National Review Online's "The Corner section ^ | 3/7/04 | John Derbyshire

[WarrenC]

RE: BUTTERFLY BROKEN ON A WHEEL [John Derbyshire]

VERY interesting e-mailbag on my Martha Stewart postings. They are running about 2-1 in support of my pro-Martha position -- somewhat to my surprise, as I thought I was being dramatically contrarian here. Interestingly, e-mails from professionals in the securities business are pretty solidly with me -- I have appended a good example down below. Points often made:

---It is not against the law to be a rich, obnoxious, not-very-honest woman, not even if your politics are Clintonian-Democrat.

---Not only was Martha not charged with "insider trading" (whatever THAT is supposed to be), she was not even charged with lying under oath. She was not in a court, and not under oath, when the relevant lies were told. Moral of the story: Tell **N**O**T**H**I**N**G** to a federal investigator. Instead, open the proceedings by demanding that he tell you which clause in the U.S. Constitution gives him the right to pry into your private affairs. Then sit mute till he gives a satisfactory answer (which he can't).

---If this is all about "protecting the little guy," what about all the little guys who held stock in Martha's company, or K-Mart? I guess those are the WRONG little guys.

Here is a good e-mail, from a securities professional:

"Dear Derb---I'm an independent stock broker and I primarily manage assets of retired people. Here is my read on the abuse of the prosecutor's discretion that the DOJ has done in the name of 'protecting the little guy.'

"Since the indictment the MSO has lost roughly 50% of its value. A mere 11% is owned buy non-insiders, hence the little guy got whacked by about $110 million since the word of the indictment. Yesterday alone outsiders got whacked by about $22.6 million. The remaining market value of the company, at about $539 million, leaves the value held in the hands of outside investors at a bit over $59 million.

"In the government's glee over protecting the system, it looks likely that they will destroy the company. Accordingly, outsiders are set to 'pay' nearly $170 million in the charge to 'protect the little guy.'

"Make no mistake, the preponderance of shares in the float are indeed owned by small individual investors either directly or through mutual funds. So it looks like the price to investors for justice puts a screwing on 'the little guy.'

"I'm all for justice and the Skillings, Lays, Kozlowskis, Ebbers et. al. deserve their due. The DOJ however, in their attempt to prove that they are not soft on corporate executives, continue to screw the pooch. Remember that Arthur Anderson & Co. partners, who were not akin to anything to do with Enron, offered almost $1 billion that could have gone to employees and shareholders that got caught by surprise. The DOJ, however, insisted that all 2600 partners at Andersen be held accountable. Not only did they lose all of the equity in the firm, but innocents that may have recuperated something ended up with zero, zilch nada.

"I'm with you on distrusting the power of the government. I'm afraid that, in their zeal to show how tough they are and ready to protect the system, they dismiss out of hand more optimal and just solutions. If this is not directed by the White House it is certainly sanctioned by it - all in the name of some unthinking form hostile populism. Dubya has many successes in gunning down bad guys on Wall Street. He needs to be a little bit less quick on the trigger in the name of fairness and equity."

Absolutely right, Sir. Govt power is a monster with a large appetite for human life. If these people take it into their heads to destroy you, they will. You've got a lawyer? They've got ten lawyers. You've got ten? They've got a hundred.

First they came for the obnoxious rich women.... Posted at 03:15 PM

[WarrenC]

Yes, thank God we have the Feds around to protect the "little guy."

[Alberta's Child]

Moral of the story: Tell **N**O**T**H**I**N**G** to a federal investigator.

This is something that hasn't been said very much about this topic. Martha Stewart has nobody to blame but herself for this mess -- because she "cooperated" with the Federal investigators but didn't tell the truth. I'd like to meet the dumb-@ss lawyer who recommended this approach.

[KellyAdmirer]

Geez, you mean the brokers and analysts are upset about Stewart and Bocanovic going down? Who'd a thunk it?

[headsonpikes]

Govt power is a monster with a large appetite for human life.

Can't be pointed out too often.

[CatoRenasci]

Well, as a securities lawyer, I have a different take on this. As all of those in the business know, Martha is a former stockbroker. She knows the ropes, and knows what you can and can't do. She and her broker buddy got caught. Instead of fessing up and paying a fine, disgorging profits etc., she decided she'd stonewall ala Lizzie Grubman.

All the second-guessing about putting her on the stand is silly: there is likely a very simple explanation whey they didn't. I'm certain her lawyers knew her local (Fairfield County) reputation as a pretty unpleasant person in real life. They also knew that if she came accross as arrogant and haughty to the jury, she was sunk. The probably coacher her and then did mock cross-examinations to see how she'd hold up. My guess is not very well, since they didn't put her on. The lawyers made a professional judgement that the risk of damage from her testifying was significantly greater than any likely benefit, or they'd have put her on.

I think Derbyshire is wrong here, but then he tends to like to be starstruck like many middle class Brits. Because Martha was a pro, I don't have a lot of sympathy for her. I think a lot of pros who think she should have been acquitted are well aware that the tip-selling/buying is something a lot of insiders do, and rarely get caught. Sort of "there but for the Grace of God go I"..... The general tolerace for this sort of thing is a majory reason why many people don't trust the securities industry. Rightly so.

[WarrenC]

Absolutely the only good thing to come out of this is that, from now on, Fed targets will know to say Nothing to investigators. But to say she has no one to blame but herself for this sounds like saying anyone not clever enough to know how to handle federal agents' questions deserves to be imprisoned, whether or not they've committed the suspected crime being investigated.

[p. henry]

I am also a securities lawyer. Martha may not have taken the stand for the very simple reason that to repeat her lies under oath, i.e. to commit perjury, would probably subject her to another trial and the possibility of a substantially longer prison term.

That being said, I agree that one consequence of this prosecution will be a substantially reduced level of cooperation with federal investigators by potential targets.

[expatpat]

.....professionals in the securities business are pretty solidly with me

What a surprise! Don't they wish they could remove all penalties for inside trading!

[Don W]

As far as I can tell, this entire MS thing is nothing less than a witch hunt.

It's the crabs in a pot scenario: If one crab manages to get near the rim of the pot, the other crabs drag it back down with them.

I don't like MS any more than anybody else, but she did very well for herself, and now the rest of the denizens of her circle are dragging her back to their level.

[Alberta's Child]

She was not your typical investor. As a sitting member of the board of the New York Stock Exchange, she was well aware of her responsibilities as far as securities law is concerned.

[LRoggy]

I agree wholeheartedly with this assessment. I am also in the business (Northwestern Mutual with a Ser. 7) and she met the criteria for sophistication that the SEC takes in deciding whether to prosecute. Since she was a stockbroker for 10 years, and a director, she gets tougher scrutiny. For those on this board that take a laissez-faire attitude on this, you are wrong about applying it here. And I take no back seat on my conservative leanings on this to anyone. She gambled and lost. By the way, the SNL sketch on this was fabulous!

[ReleaseTheHounds]

"I'm all for justice and the Skillings, Lays, Kozlowskis, Ebbers et. al. deserve their due. The DOJ however, in their attempt to prove that they are not soft on corporate executives, continue to screw the pooch. Remember that Arthur Anderson & Co. partners, who were not akin to anything to do with Enron, offered almost $1 billion that could have gone to employees and shareholders that got caught by surprise. The DOJ, however, insisted that all 2600 partners at Andersen be held accountable. Not only did they lose all of the equity in the firm, but innocents that may have recuperated something ended up with zero, zilch nada.

Regarding Arthur Andersen: where do the investors who were swindled in Enron and Worldcom go to get an honest audit now that their life savings have disappeared? As a firm, AA was one of the very complicit actors in these frauds that looted so much from "trusting" investors.

I agree that Martha's crimes don't measure up to the crimes of Enron, Worldcom, Adelphia and some others, but they were still crimes. The fact that MSO's investors have now suffered a major knock is unfortunate, but at least these investors had about a year or two to find an escape hatch and they could have followed the trial and seen that things weren't going Martha's way the entire time. Many others deserve much worse than Martha -- Jack Grubman comes INSTANTLY to mind and he probably just represents MANY in the Investment Banking community who have slipped through the slimey cracks of these scandals -- but that doesn't mean she is innocent. What would the lesson have been if she was acquited? That lying to investigators is OK? Trading on inside information is OK as long as you're not caught? That lying to your own investors is OK if it's in the name of supporting your share price? Martha was found GUILTY on all 4 counts by a jury of 8 women and 4 men. And they didn't have to take a great deal of time figuring it out given the evidence presented.

[CatoRenasci]

Well, that's always possible, and also not inconsistent with my thought that the lawyers made a judgement call that the risks of her going on the stand (either because she'd lie again or just be badgered into being unsympathetic or both) outweighted any potential benefit to her testifying.

And, I tend to agree with your point about cooperation. But, failure to cooperate, in itself, can be a cause for discipline by the NASD, if I recall correctly (I don't work on that side of the business so much).

[Oztrich Boy]

That being said, I agree that one consequence of this prosecution will be a substantially reduced level of cooperation with federal investigators by potential targets.

you mean, potential targets might now think twice before lying to federal investigators?

[p. henry]

It's not quite that simple. For example, I am a securities transaction attorney. Every year I advise clients on many fundings and acqusitions. In the current environment it is at least possible that I might be a target along with my clients if one of those transactions goes south. Given the number and complexity of the transactions in which I am involved, it is possible, indeed likely, that if I answered questions about one of those transactions, believing in good faith that my answer was true, that I might be wrong. Given what happened to Martha, I can assure you that I would be very circumspect about giving even good faith answers under those circumstances.

[cinFLA]

That being said, I agree that one consequence of this prosecution will be a substantially reduced level of cooperation with federal investigators by potential targets.

Huh? How can you get less cooperation than MS gave ...