Posted on 03/06/2004 11:25:49 AM PST by summer
Courtroom Tales of Martha's Lies . . .
Published: March 6, 2004
Martha Stewart, the woman who capitalized on her sense of decorum and good taste to build a business empire, is likely to go to jail for lying. Despite some significant overreaching in framing the original charges against her, the trial vindicated the government's decision to prosecute her and her broker. A Manhattan jury convicted Ms. Stewart yesterday of lying to federal prosecutors and of conspiring with her broker, Peter Bacanovic, to obstruct inquiries into why she sold her nearly 4,000 shares of ImClone Systems on Dec. 27, 2001. Ms. Stewart was found guilty on all four counts considered by the jury; her broker, on four of five.
Earlier, at the conclusion of the testimony, Miriam Goldman Cedarbaum, the presiding federal district judge, had tossed out the most serious charge, securities fraud, against Ms. Stewart. That was the right call. Prosecutors did overreach with their fanciful charge that in defending herself, Ms. Stewart had been conspiring to prop up her company's stock price.
Absent a straightforward insider-trading charge, the jury was left to determine that there had been an illegal cover-up — and on that, the evidence was compelling — without defining the underlying impropriety. Still, the narrative that emerged at the trial justified the government's determination. This trial was not about unfairly targeting a celebrity defendant, but about enforcing the transparency of financial markets.
The trial depicted a cozy world where insiders routinely use their wealth and connections to benefit from insider information. Samuel Waksal, ImClone's former chief executive and Ms. Stewart's close friend, is serving a seven-year prison term for illegally dumping his own holdings in his company's stock on that same Dec. 27, before it became public knowledge that the Food and Drug Administration had refused to approve the company's anticancer drug, Erbitux. En route to a Mexican vacation, Ms. Stewart was informed by her broker's office that Dr. Waksal was dumping his shares.
The clumsy attempts by Ms. Stewart and her broker to fabricate alternative explanations for her subsequent stock sale are what did them in.Despite being a former stockbroker and director of the New York Stock Exchange, Ms. Stewart's actions were openly contemptuous of the government's right to police the integrity of the markets. As for Mr. Bacanovic, his prosecution should dissuade others in financial services who might be tempted to let a few favored clients benefit from insider information.
Well, sorry it took so long to get back to ya, Nappy. Had a lot of real work to do, couldn’t waste that much time on trivia. But now it’s time to respond.
But first…a little comment from a real lawyer:”Administrative law is an oxymoron”. You tell us what it means. I think it’s been my point all along.
First, let’s let one of the issue sites make a comment (“Let this sink in”): "Although properly speaking, regulations are not law, rules and regulations have the full force and effect of the law" -
Nice website. But they go a little overboard towards the end there. But the point remains…..Federal rules are not Statutes. Period. Case law since the late 1930’s has basically clarified that the Statutes can make a rule have the same weight as a Statute, but…they still cannot convert the one into the other. Sort of legal entropy if you will. You can’t go backwards.
And so there are two questions that pervaded our little back and forth…
- You assert that violations of Federal Regulations are crimes, and that agencies, like the SEC, can mete out punishment.
- You assert that “Insider Trading” is a crime by virtue of case law and SEC Rules, specifically.
To answer both of these, let’s take a little walk through the website that you linked to:
So, if they just have crimes to pursue, how come they have a law court? This isn’t a federal court:
Funny, huh? All they have is references to their Civil litigation actions they have brought, Administrative law court decisions (that’s what the ALJ Initial Decisions and Orders line is about), and other civil actions.
It appears that they do precisely what I said they do:
Note that enforcement "actions" are only against "regulated persons".
That is: "In proceedings against regulated persons, the Commission is authorized to order the payment of civil penalties as well as disgorgement"
NOTHING ABOUT IMPOSING CRIMINAL SANCTIONS. THOSE ARE REFERRED TO THE DOJ FOR PROSECUTION IN THE FEDERAL COURTS. (Let that “sink in”).
So just how do we get to a criminal court? Well, we’d have to violate a law, right? How in the world could violating a Rule be criminal – after all, I just showed you the SEC’s own enforcement division web page…and they said nothing about things like how you get to prison. Just things like how they can fine you, or take away your license…oops, all the things I said they do about 5 posts ago. So where oh where does the law come in – and not by the back door of case law like Chiarella or O’Hagen.
That’s easy. Through the United States Code – NOT the Code of Federal Regulations. You keep alluding to the 1934 Securities and Exchange Act? That is precisely what 15 USC Chapter 2B is: 15 USC 2B
If you’re reading O’Hagen or whatever, and you read someone say something like ‘This was a violation of the 1934 Securities Act’, well, what they really meant was 15 USC 2B. The long version is just how the chapter can be cited. So don’t get confused and think that the Securities Act is something special, and standing alone all by itself. It isn’t. It’s an ordinary chapter in the USC. Again, NOT the CFR.
The whole chapter is listed here:
So all of the authority for the SEC and the declarations of what is lawful and unlawful in relation to the 1934 Act therefore are contained in this chapter. All SEC regulations and case law derive their legitimacy from this Chapter. If violation of an SEC rule is to somehow be transformed into a crime, it has to come from here, because no place else does it say that in general, “rules is crimes”.
That occurs here, in a rather general way: 15 USC 78j
Didja get that part? "Insider trading" is not a Statute, but is in fact left specifically to the SEC to define as a rule! Therefore:
"Insider trading" is only "unlawful" by inference of the operation of 15 USC Chapter 2B Sec. 78j, which says that it's unlawful to violate the fraud or deceptive device or insider trading rules so adopted by the SEC under their authority.
Let’s stop right there. Didja really, really get that subtlety? The Statute says it’s against the law to violate the regulation. The regulation by itself has no authority. All of it derives from………the Statute. By itself…the rules are civil matters. When you violate Rule 10b-5, it’s only a crime because….you’re really violating 15 USC Chap. 2B Sec. 78j.
Is this really difficult for you to understand?
Note that the Civil Liability for ‘insider trading’ is actually here: 78t-1
And here is the actual penalty that is all the SEC can "impose" by itself, spelled out: 15 USC 78u-2
Note that it requires "willful violation". WILLFUL VIOLATION is the ONLY way it can ever be extended to a Criminal court, and that is spelled out here:
Note that a defense is "not having knowledge" or not "willfully" violating a regulation authorized under the act. In fact, here’s a little tidbit from the journalists that you like to quote:
“This factor may also suggest that Waksal had no criminal intent at the time of his sales and that it all might have been handled as a civil SEC matter”
This time the journalist got close to being right. Rules are not laws; the only time a Statute operates is when a Rule is willfully violated – i.e., intent is provable.
This started out by me saying that agencies of the Federal government cannot write their own laws that are crimes; only Congress has that power. But, that willful violation of rules promulgated under authority given by Congress can make the violation of a rule a crime – and that this catenation is critical. Otherwise, it is a civil matter. And that is the reason all of the rule making agencies have their own court system – the Administrative Law courts, including the SEC.
Your rejoinder is that the 1934 Securities Act and Common Law is what makes “insider trading” a crime. I have shown you that 15 USC 2B contains only an indirect reference to such, and leaves it to the rule making capacity of the agency to define such a thing.
In general, agencies may propose rules only within the scope and bound of the enabling Statute. This is described in 5 USC Ch. 6 Sec. 601:
“the term ''rule'' means any rule for which the agency publishes a general notice of proposed rulemaking pursuant to section 553(b) of this title, or any other law, including any rule of general applicability governing Federal grants to State and local governments for which the agency provides an opportunity for notice and public comment, except that the term ''rule'' does not include a rule of particular applicability relating to rates, wages, corporate or financial structures or reorganizations thereof, prices, facilities, appliances, services, or allowances therefor or to valuations, costs or accounting, or practices relating to such rates, wages, structures, prices, appliances, services, or allowances; “
And that settles it as far as I am concerned. My original understanding of the status of rules and of the powers of federal agencies remains intact. You can argue all you want that the operation of Statute converts a rule into law, but nowhere does the Code of the United States say that. It says that Statutes may designate agency rules that are to be followed, but it is the Statute itself which, when a rule violation occurs, that is referred to.
Now your understanding is to some extent an understanding which has become traditional, largely through usage, case law (as you assert) and through outright usurpation of power by federal agencies which are merely trying to see how far they can push the boundaries. This whole subject is referred to as Delegation and is quite controversial. In fact, the growth and power of the CFR has led even someone like Justice Breyer to suggest that the entirety of the CFR be introduced and adopted by the Congress, so as to legitimate it as law. His proposal includes doing this in the future with any NPRM which has an impact of > $100 million. Where he gets such an arbitrary figure, who knows. But Breyer admitted that the actual threshold value should be as small as possible without drowning Congress in mountains of proposed trivial regulations.
But I would maintain that that is what Congress was sent there to do and if they can’t consider something because of their backlog, then it should never see the light of day. Convenience is not an argument for unconstitutionally handing over legislative power to the Executive. This is something that got started under the Socialist Party platforms as adopted by the Democrats in 1932 with FDR and which has snowballed ever since.
If you’d like to read some real Conservative critiques of the Adminstrative State, go here:
Constitution.org on the Administrative State
Since your foaming-at-the-mouth advocacy of the tyranny known as the Administrative State has shown you to be anything but a Conservative, I thought that this rather well known Conservative website would be a good place for you to read some the underpinnings of the notion that FDR’s arrogation of power into the hands of the unelected and unaccountable is unconscionable and the source of the opposition that we Conservatives assert. Who knows, after reading such revolutionary notions you may even decide to flee the Democrat Party, the worship of the Judiciary and the Executive bureaucracy, and realize that much of what the Federal government does these days is quite outside the Constitution and, just because they do it anyway, still doesn’t make it right. Even if they can find a Circuit Court judge or the occasional SCOTUS “Justice” to say so.
And even though I think CATO is far too doctrinaire, they do have this rather interesting piece: Cato on Regulation
All in all, I’d say your positions are the indefensible positions of the Statists who seek to rule the country through Executive fiat, legitimated by their Fellow Travelers in the Judiciary. Beats having to run for election.
And since that seems to be your outlook, what the hell are you doing on a forum like FreeRepublic? Wouldn’t you be happier at Socialist.org – where Bony wants to be…. ? Maybe you could hum the Internationale while dreaming of writing your very own punitive regulation that would justly take the unjustly gained property of the rich! Onward to victory, Comrade! You have only your chains to lose!
See ya, Commie-Parte. Your side may have the upper hand at the moment, but nothing lasts forever, especially tyranny.
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