Larry Boocker sent me this e-mail which advances another point-o'-view on the matter of Martha Stewart's conviction…
A lot of people seem confused about the nature of Martha Stewart's crime and more generally, the reason why insider trading is illegal. They think it's a victimless crime or a trivial crime or a "technicality" crime. Let's start with the immediate victims. Those are the people who bought her shares of Imclone stock when she knew with certainty that their value would drop sharply. Well, that's just her good luck and the buyers' bad luck, right? Kind of like when a gambler puts money on 17 red at a roulette wheel and the casino knows for sure that that number won't hit this time around. Isn't that equally fair?
And that's what this is all about, protecting the integrity of the game. How many people will go to a casino if they suspect the games are fixed? How many people will put their money into the stock market if they suspect it's rigged so that a small number of insiders can make money and everybody else loses. Regulation of the stock market goes back to the New Deal. There were a lot of shady practices before the 1929 crash. When people lost a lot of money in the market, they also lost confidence in the fairness of the market. For years, they were
afraid to put their money back in. This was bad for our economy and for our country. So the SEC was created, not to protect investors, although that's the claim. It was created to protect the stock market, to convince people it's safe to put their money there. Insider trading is
illegal, not to protect investors, but to protect the reputation of the market.Yes, Martha wasn't directly convicted of insider trading. Kind of like when Al Capone was convicted of failing to pay taxes on his illegal income rather than the illegality of his income. Wasn't that a terrible injustice? I don't think so.
So we had all these business scandals involving Enron and Worldcom and investors got hurt by their shady dealings. (Their employees took a double hit since many of them were invested in their employer.) The government needed to do something to restore confidence in the integrity of the stock market. So they went after Martha. Is this fair? I think so. I've never been impressed by criminals who argue that they weren't the only ones doing the crime or that others were doing worse.
I don't see any reason to chortle over her conviction. I certainly hope that the Enron and Worldcom guys get punished more severely. But I don't think any injustice was done to Martha.
This is not something about which I feel that strongly, but my inclination is in a different direction. I'm not one of those disputing that insider trading is and should be illegal…but Martha wasn't convicted of insider trading. They couldn't prove that, and it's not like they couldn't prove it for the same reasons that prosecutors couldn't prove Al Capone was bootlegging. Capone was having witnesses killed or threatened. He was bribing cops and judges and juries. He had erected an elaborate series of front companies that masked his involvement with the rackets. No one has suggested they couldn't convict Martha Stewart of insider trading because she had a couple of stockbrokers bumped off. In Capone's case, the one weakness in his shield from illegal activities was that he had received the money…so they prosecuted him for that. That, at least, was an actual crime.
Looking back for a famous precedent, the Martha Stewart conviction might in some ways remind me of what Jim Garrison tried to pull after Clay Shaw was acquitted of charges that he conspired to murder John F. Kennedy. The acquittal was swift and total, and rather than accept that, Garrison spent the next year or two trying to charge Shaw with all sorts of niggling little technicialities…finding the slightest discrepancy in the man's testimony, for example, and trying to frame it as perjury. There was a very powerful attitude of, "We'll be embarrassed if we don't convict this guy of something" and I fear that kind of thing happens more in our justice system than it ought to. I don't have one handy but I used to casually track cases where the prosecutors couldn't prove the reason they arrested or targeted a subject, and it then became a matter of plea bargaining — "Plead guilty to this one thing or we'll keep this investigation going forever" — or convicting them on some trivial ancillary detail. (Just thought of one: The McMartin Pre-School fiasco. They charged those people with 208 counts of child molestation and couldn't prove one, but they kept it going for years, hoping someone would crumble and plead guilty to something so the D.A.'s office wouldn't look completely inept. Which in this case, it was.)
I'm not convinced that kind of thing occurred with Ms. Stewart but I'm also not prepared to accept that she was the equivalent of Al Capone so we should rejoice that she was convicted of something, even if it might have been the wrong thing. You're right that it's no justification for wrongdoing to say that others did worse. But it also won't be right, if the Ken Lays of the world get away with their crimes, for prosecutors to say, "What do you mean we didn't nail the big guys committing stock fraud? We got Martha Stewart, didn't we?"
As I said, I'm not set in my view of this, so I appreciate the discussion. I'm just leaning in the direction of something here not being right.