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American Morning

More Trouble for Martha Stewart

Aired August 07, 2002 - 09:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
BILL HEMMER, CNN ANCHOR: There was more trouble this morning for Martha Stewart. Congressional sources now saying they are ready to subpoena the domestic diva, who is refusing to cooperate with investigators that are now looking into that controversial sale of ImClone stock back in late December. Accusations that Stewart dumped her shares based on insider information have damaged her public image and her company's value as well.

Stewart denies there was anything improper about the sale, but now her broker's assistant is said to be contradicting Martha's story.

So, we asked the question today, what kind of trouble could she find herself in?

Here in New York Jack Coffee, professor of law at Columbia University is our guest.

Nice to see you, Jack.

JACK COFFEE, COLUMBIA UNIV.: My pleasure.

HEMMER: Listen, you think this is a serious matter. How so, and why?

COFFEE: I think it's following the pattern of a lot of white collar cases, in which the defendant winds up being in a lot more trouble for what they've done after the investigation started than for the original suspected offense. Her position on insider trading liability is pretty ambiguous, equivocal. It's pushing the envelope to go ahead on that theory. But there's now increasing evidence there may have been a fabrication, and a coverup and lies told to federal regulators, and the government will prosecute that.

HEMMER: Give a quick explanation for this, why insider trading is much more difficult to prove or as obstruction of justice after the offense as you say is much easier?

COFFEE: This is not the classic insider trading case. There's no evidence she knew about the FDA report, which is the key material fact. All she knew about was the sales by the family. And that requires that you come forward with the fairly novel theory that the broker breached his duty to the family by revealing their sales to Martha Stewart. And there's no since here that the family really expected confidentiality or were going to be injured in any way by the revelation of their sales to Miss Stewart.

HEMMER: Why is it that she seems to be such a target here? People cheat. People break the raw. Insider trading happen a lot whether people want to admit it or not. People are always talking. You could make a case for a lot of individuals who deal with Wall Street. Why then on Martha has the hammer come down so hard?

COFFEE: Well, if they have evidence of insider trading, I think the government today will be punitive in virtually any case where they have the evidence. And Martha is a high-profile figure, and I've got a fair amount of calls from the press. I don't see anyone having this level of media-intense fascination. If she has to do the so-called perk walk, it might be the most televised and watched event in modern white collar criminal history.

HEMMER: If that's the case then, are they making example out of her?

COFFEE: That's not illegitimate. If people are high profile, that's one way of getting better deterrence. But I think she does invoke intense feelings on both side.

HEMMER: OK, let's break this down simply here for our viewers. The rub appears to be what conversations and what actions were committed by her broker and her, and what the assistant of the is now saying, and very factual, easy form. How do we understand this? Here's the broker now.

COFFEE: Essentially, it's a question of whether or not she and her broker concocted a story to say there was a stop-loss order, which would be a very valid defense to insider trading. We've had her assistant now tell the federal regulators and the U.S. attorney that he was pressured to tell that story and he didn't believe it, and the fact he sort of broke down under pressure makes him a very credible witness to say, "I was asked to tell a falsehood, and I couldn't carry it off," and jurors can believe that.

HEMMER: In the meantime, what is your read on the House committee trying to get the subpoena possibly and ask Martha Stewart to come to Washington and sit in front of members of the House, and at this point anyway, it appears that she will rebuff those efforts.

COFFEE: I think any confident defense counsel will tell her now that she can't go under oath. She's just inviting perjury charges. She's just giving evidence to the prosecution. So she's doing the same thing as some of the Enron executives and others, so I can't imagine a lawyer letting her testify. They may delay and use all kinds of evasions. I doubt she will testify.

HEMMER: The CEO Sam Waksal, he has a perk walk at the end of last year. Do you believe right now that Sam Waksal is talking with investigators, possibly copping a plea, and if so, what kind of information would he be talking about?

COFFEE: He's in a very difficult position, because his children could be indicted. That focused intense pressure on the parent to cooperate and plead guilty to protect them. He could tell them that he told Martha. We don't know, and I can't assume that was true. Otherwise, right now, we just have the claim that their brokers knew the family was selling, and that allegedly was its own material fact.

HEMMER: Go it. We got to go. But listen, you have a lot of experience in this area. What kind of timeframe are we looking out before there's some resolution, conviction or acquittal?

COFFEE: In terms of key decision will there be criminal information or indictment, that could be within two months. But if there's a trial, it wouldn't be this year.

HEMMER: Pleasure. Jack Coffee, Professor of law at Columbia University.

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