by Joan McLeod Heminway (ed). Durham, North Carolina: Carolina Academic Press, 2007. 416pp. Paper. $35.00. ISBN: 9781594602368.
Reviewed by David O. Friedrichs, Department of Sociology/Criminal Justice, University of Scranton. Email: friedrichsd1 [at] scranton.edu.
The legal case against Martha Stewart, the celebrity lifestyle entrepreneur and media personality, originated with her sale of ImClone stock on December 27, 2001, after receiving a call from her broker that suggested the sale was based upon insider information. It was surely among the highest profile white-collar crime cases of the recent era. The accused has been a highly visible celebrity for many years, the founder of a vast “lifestyle” media empire, with her own magazine, TV show and best-selling books, as well as a successful home furnishing products line. If on the one hand she has been widely admired, she has also been widely mocked, envied and disliked. In a celebrity-obsessed culture, the immense media coverage when she was investigated for alleged insider trading was quite predictable. Although by some criteria the specific case against her was quite limited in scope – certainly in comparison with other cases emerging during this period such as those involving Enron and WorldCom – the profound contradictions between Martha Stewart’s standing as a phenomenally successful businesswoman and source of inspiration to vast numbers of people attempting to enhance their lifestyle, and the prospect of her status as a convicted felon and prison inmate, was inevitably fascinating to a large swath of the American public.
The book under review has thirteen chapters (or articles) that focus upon the Martha Stewart prosecution as a basic point of departure for exploring a range of legal issues brought into especially sharp relief by this case (with the exception of one of the editor’s contributions, the chapters are derived from previously published articles in law reviews.) Of course this book also quite transparently exploits Martha Stewart’s celebrity and the vast media and public interest in her case as a hook to entice students and other interested parties to engage with legal issues that otherwise might be regarded as quite dry and “technical.” The inclusion of several “discussion questions” at the end of each chapter is intended to enhance the pedagogical value of the book.
The editor, Joan McLeod Heminway, contributes four of the thirteen chapters, in addition to her editorial input. In the opening chapter, she explores possible sources of bias in the decision to investigate and prosecute the case. These possible sources of bias include Martha Stewart’s status as a female, Democrat, and public figure. The complexities and the ambiguities of insider trading law provide many opportunities for enforcement bias, as do the multiple enforcement processes available in cases of this nature. Heminway calls for a more thorough [*384] consideration of such biases as a basis for possible policy reforms.
Of course, conscious and subconscious biases have always been a part of investigatory and prosecutorial decision-making for the whole range of criminal cases. At least some significant proportion of conventional crime cases have been pursued due to racial, ethnic, class and gender-related biases, as well as political considerations (e.g., the political benefits of pursuing cases that have generated high levels of public fear and concern). Although Heminway specifically disavows as an objective promoting sympathy for Martha Stewart, she discloses in a footnote that she has been a subscriber to MARTHA STEWART LIVING and a purchaser of Martha Stewart products. There is at least a suggestion here that her own considerable interest in the case is not simply a function of the legal issues it raises but also of her own sense that Martha Stewart got a raw deal. My own biases, if anything, are on the other side of the equation. Wealthy celebrities such as Martha Stewart typically have been happy to accept many special privileges accorded those with their status (e.g., the best tables at high-end restaurants). In some circumstances, of course, the special attention accorded celebrities will not be welcome. Indeed, it is exceptionally foolish for high-profile pubic figures to engage in illegal (and unethical) behavior, both because they are especially vulnerable to being caught and are likely to pay a high price when they are. That prosecuting such cases will reap millions of dollars of free publicity for a claim of wrong-doing meriting penal sanctions surely motivates prosecutors. They may a hope that one of the principal objectives of criminal prosecution – a deterrent impact – will be realized.
Stewart’s brief time in prison came about as a result of a stock transaction saving her from a loss of some $45,000 on her ImClone stock. This is a virtually trivial sum of money in relation to multi-billion dollar losses associated with some major white-collar crime cases, as well as in relation to her wealth (in the hundreds of millions). But one can also note that some ordinary investors not privy to a “heads up” on Imclone’s impending stock decline sustained real losses by purchasing Stewart’s dumped stocks. Of course, from another vantage point, countless conventional offenders have received long prison sentences as a result of property crimes involving a fraction of $45,000.
The remaining chapters in the first part of the book also address pretrial enforcement issues relevant to a criminal action. Ellen Podgor identifies many different bases for prosecutorial discretion and expresses a concern that when someone like Martha Stewart is prosecuted for telling lies – and not the original alleged wrong-doing – other individuals could be deterred from voluntarily speaking with government officials. Michael Seigel and Christopher Slobody note that, due to finite resources and alternative regulatory action, white collar crime prosecutions are inevitably quite limited. They identify some of the rationales for prosecuting Martha Stewart, but also believe that multiple, redundant and over-lapping charges are an issue that [*385] could be more effectively addressed by judge-supervised oversight. For Geraldine Szott Moohr, if the broad dimensions of prosecutorial powers present defendants such as Martha Stewart with real challenges, less well-off defendants are even more vulnerable, and this legitimate concern should be addressed. In a closing contribution to this section, Editor Heminway poses the question of whether Stewart’s misrepresentations were “material” as defined by law. She suggests that possible legislation or judicial clarification of the relevant insider law rule (10b-5) should be considered, along with a rethinking of the original 1934 Act’s supposed protection of investors in relation to non-corporate executive information.
The second section is devoted to substantive legal issues relevant to the criminal action. Stuart Green reviews the varying moral and legal judgments that arise in a range of white-collar crime cases, and the specific underlying moral concepts for “cover-up” crimes. He makes some useful comparisons between different high-profile perjury cases (e.g., involving President Clinton, and more recently Lewis “Scooter” Libby) in terms of levels of egregiousness. The Martha Stewart case is located in relation to other such cases. Green notes the usefulness of prosecuting public figures for deterrent purposes. Ellen Podgor, in her second contribution, explores the legal concept of materiality in some depth, and wonders whether the failure in the Stewart case of providing the jury with a “materiality instruction” sacrificed important judicial values. Heminway, in her third contribution to the volume, also explores a legal notion – scienter, or awareness of the falsity of statements – that failed to go to the Stewart jury, and raises the question of whether an insider should in fact be found guilty under the relevant rule (10b-5) of lying in public about personal transactions. Donald Langevoort also explores scienter, and suggests that the Stewart Court seems to have misunderstood the relevant rule. He notes that culpability in alleged securities fraud cases is often difficult to parse out, with the degree of fraud falling along a continuum, and, in his view, Stewart’s actions may have fallen short of meeting the scienter requirement. In her fourth and final contribution, Heminway examines materiality specifically in relation to the substantial likelihood of the actions of a “reasonable” investor being influenced by the accused’s words or actions. In the Martha Stewart case, materiality in this sense was never considered by the Court due to its actions on other matters, but Heminway suggests that Stewart’s actions were not material as understood by the relevant law.
The final section includes three articles that address legal matters outside the criminal action. Kathleen Brickey examines some of the issues that arose in relation to the jury, post-trial allegations of prosecutorial misconduct (e.g., in relation to expert witness perjury and the withholding of exculpatory evidence), and sentencing. Some misrepresentations by a high-profile juror, the withholding of exculpatory evidence in relation to expert witness perjury, and the alleged hardship to her company that would arise from sending [*386] Stewart to prison, were all claims that did not determine outcomes in this case. Altogether, Brickey reviews some dimensions of Stewart’s transformation from “icon to ex-con.” Jeanne Schroeder undertakes an in-depth exploration (drawing upon Lacan among others) of the relevance of the “sin of envy” and of jealousy in understanding the prosecution (or persecution) of Martha Stewart. Certainly her “annoyingly smug perfectionist personality” played a role in the widely diffused public schadenfreude (joy in her misfortune). Schroeder suggests that the law should discriminate between valid forms of envy of insider advantages and purely human forms of jealousy toward the privileged in the formulation and application of insider trading law. Altogether, the existing misappropriation law seems incoherent to her, and the insider trading law an example of de facto common law crime. As someone currently engaged with the issue of excessive executive compensation in relation to white-collar crime, I was especially interested in the comparison of this issue to the abuse of insider information. And finally, a concluding article by Lisa Fairfax examines the important matter of the responsibilities of corporate directors in cases like Stewart’s, and the formidable problem of director conflicts of interest. Historically, the Delaware courts where so many corporations are chartered have interpreted conflict-of-interest narrowly in this realm, according directors broad leeway. Fairfax calls for more stringent consideration of the many factors (including board room culture) that compromise the independence of corporate directors. The Stewart case specifically failed to consider the conflict-of-interest issues in relation to the actions of corporate directors.
Law professors engaged with the doctrinal issues addressed in this volume are likely to find many points of interest in the various chapters. The typical reader of the LAW & POLITICS BOOK REVIEW, however, will have a much more selective interest. Certainly the prosecutorial pursuit of celebrity cases has some significant political and cultural ramifications, as was suggested above. As a potential course text for students, some practical considerations compromise adoption prospects: e.g., that in certain important respects the case against Martha Stewart was atypical, the inevitable elements of repetitiousness on particulars of the case between chapters, and the somewhat limited scope of legal issues addressed. Altogether, it is good to have these law-focused articles on such a celebrated case bound together in a single volume.
©Copyright 2007 by the author, David O. Friedrichs.