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American Morning

Legal Issues Involved in Martha Stewart Trial

Aired January 06, 2004 - 08:02   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: The first phase of jury selection starts today in the Martha Stewart matter. She's accused of securities fraud, obstruction of justice and making false statements. That's in connection with her sale of ImClone stock.
Here to look at that case, Andy Serwer and legal analyst, senior legal analyst Jeffrey Toobin.

JEFFREY TOOBIN, CNN LEGAL ANALYST: Wow.

HEMMER: And our senior financial analyst right here.

ANDY SERWER, "FORTUNE" MAGAZINE: Yes, I was going to say.

HEMMER: Well, the both of you.

TOOBIN: Chief financial analyst.

HEMMER: Let's take some basic legal approach here. The charge of conspiracy.

With whom?

TOOBIN: Peter Bacanovic, certainly the forgotten man in this story. He was the stockbroker at Merrill Lynch who did the transaction, who actually initiated the transaction selling the famous ImClone stock. Very interesting that Peter Bacanovic has not cut a deal with prosecutors. I think a lot of people expected he would flip and testify against Martha Stewart.

He has not done that. They are still both co-defendants. The fact that he has not flipped against Martha Stewart is a very good fact for her defense.

HEMMER: Let me tick to you again, then, quickly, fraud.

What's the allegation?

TOOBIN: That by denying that she was guilty in any way, that that was artificially pumping up her stock price. A very unusual theory. The judge said it was novel, but she allowed it to go forward.

HEMMER: How do prosecutors allege that she obstructed justice?

TOOBIN: By lying to prosecutors about the reason for selling stock, a very straightforward theory. HEMMER: So there are a number of theories right now that are starting to play into this entire case here.

TOOBIN: Um-hmm.

HEMMER: Do you two buy into the possibility that the stock market doing better now portends better for Martha Stewart, with the NASDAQ above 2,000 as opposed to 1,200? Do you buy that, Andy?

SERWER: Well, maybe there's some truth to that. I mean people have forgotten about the terrible losses they suffered in the stock market over the past couple of years with the market bouncing back like that. And it's interesting, if you look at Martha Stewart's own stock, yes, it has dropped a lot, going from about $19 to about $10 today, but it had been even lower. It's come back.

And the other important point, I think, about the stock market is that this is a stock that's not widely held. There wasn't a whole lot of collateral damage here to investors like there was in Enron or WorldCom. So it's not like you can point a lot of fingers and say this woman ruined a lot of people's 401Ks.

TOOBIN: I also think a factor that, you know, Enron is out of the news. Tyco is pretty much out of the news. The sort of white collar executive malfeasance is not a big story. That helps Martha Stewart. But also what helps her is the fact that the CEO of Enron was never prosecuted. The big fish have gotten away and why are they picking on Martha Stewart?

SERWER: Right. And here's...

TOOBIN: That's an argument that can be made here.

SERWER: You know, those are the companies, WorldCom and Enron and Tyco, I mean they destroyed tens of billions of dollars of shareholder value. Here's a person that's a celebrity, she's a woman. In theory it's sort of a more of a straightforward case, Jeff. It's not as complicated as Enron, certainly. So are they picking on her? Will that enter into the jurors' minds?

HEMMER: The way you sized it up yesterday, you say she says that she had an agreement to sell the stock at a certain price. The government says she had information that told her that stock price was going to go down and she was going to lose money. That is the entire case in a nutshell.

TOOBIN: That's really the whole case. I mean it's really not that complicated. The government and defense have both said this trial is going to last six weeks. I bet it takes more like three or four.

HEMMER: You believe so?

TOOBIN: It is not going to be that complicated a case.

HEMMER: Jury selection could go how long? TOOBIN: The jury selection, that's a set time limit. Opening, it's going to be about two weeks. Opening statements on January 20. But I think it'll be over in a month.

SERWER: Yes, it could, and the thing is, I think this thing, if it ends quickly, I think she will bounce back from this. I don't think her career is over at all, especially if she comes out favorably out of this whole thing.

TOOBIN: I think so because you know what? "Martha Stewart Living," it's a really good magazine. I mean that's the thing, it's a good...

SERWER: He gets a lot of recipes.

TOOBIN: No, I...

SERWER: He does a lot of cooking.

TOOBIN: No, I want...

SERWER: No, it is. It's very well put together.

TOOBIN: No, it's a very, it's a good product.

HEMMER: And the holiday needlework that he put together.

SERWER: Oh, my goodness.

TOOBIN: The doilies.

(CROSSTALK)

HEMMER: Talk to you later, OK?

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com






Aired January 6, 2004 - 08:02   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
BILL HEMMER, CNN ANCHOR: The first phase of jury selection starts today in the Martha Stewart matter. She's accused of securities fraud, obstruction of justice and making false statements. That's in connection with her sale of ImClone stock.
Here to look at that case, Andy Serwer and legal analyst, senior legal analyst Jeffrey Toobin.

JEFFREY TOOBIN, CNN LEGAL ANALYST: Wow.

HEMMER: And our senior financial analyst right here.

ANDY SERWER, "FORTUNE" MAGAZINE: Yes, I was going to say.

HEMMER: Well, the both of you.

TOOBIN: Chief financial analyst.

HEMMER: Let's take some basic legal approach here. The charge of conspiracy.

With whom?

TOOBIN: Peter Bacanovic, certainly the forgotten man in this story. He was the stockbroker at Merrill Lynch who did the transaction, who actually initiated the transaction selling the famous ImClone stock. Very interesting that Peter Bacanovic has not cut a deal with prosecutors. I think a lot of people expected he would flip and testify against Martha Stewart.

He has not done that. They are still both co-defendants. The fact that he has not flipped against Martha Stewart is a very good fact for her defense.

HEMMER: Let me tick to you again, then, quickly, fraud.

What's the allegation?

TOOBIN: That by denying that she was guilty in any way, that that was artificially pumping up her stock price. A very unusual theory. The judge said it was novel, but she allowed it to go forward.

HEMMER: How do prosecutors allege that she obstructed justice?

TOOBIN: By lying to prosecutors about the reason for selling stock, a very straightforward theory. HEMMER: So there are a number of theories right now that are starting to play into this entire case here.

TOOBIN: Um-hmm.

HEMMER: Do you two buy into the possibility that the stock market doing better now portends better for Martha Stewart, with the NASDAQ above 2,000 as opposed to 1,200? Do you buy that, Andy?

SERWER: Well, maybe there's some truth to that. I mean people have forgotten about the terrible losses they suffered in the stock market over the past couple of years with the market bouncing back like that. And it's interesting, if you look at Martha Stewart's own stock, yes, it has dropped a lot, going from about $19 to about $10 today, but it had been even lower. It's come back.

And the other important point, I think, about the stock market is that this is a stock that's not widely held. There wasn't a whole lot of collateral damage here to investors like there was in Enron or WorldCom. So it's not like you can point a lot of fingers and say this woman ruined a lot of people's 401Ks.

TOOBIN: I also think a factor that, you know, Enron is out of the news. Tyco is pretty much out of the news. The sort of white collar executive malfeasance is not a big story. That helps Martha Stewart. But also what helps her is the fact that the CEO of Enron was never prosecuted. The big fish have gotten away and why are they picking on Martha Stewart?

SERWER: Right. And here's...

TOOBIN: That's an argument that can be made here.

SERWER: You know, those are the companies, WorldCom and Enron and Tyco, I mean they destroyed tens of billions of dollars of shareholder value. Here's a person that's a celebrity, she's a woman. In theory it's sort of a more of a straightforward case, Jeff. It's not as complicated as Enron, certainly. So are they picking on her? Will that enter into the jurors' minds?

HEMMER: The way you sized it up yesterday, you say she says that she had an agreement to sell the stock at a certain price. The government says she had information that told her that stock price was going to go down and she was going to lose money. That is the entire case in a nutshell.

TOOBIN: That's really the whole case. I mean it's really not that complicated. The government and defense have both said this trial is going to last six weeks. I bet it takes more like three or four.

HEMMER: You believe so?

TOOBIN: It is not going to be that complicated a case.

HEMMER: Jury selection could go how long? TOOBIN: The jury selection, that's a set time limit. Opening, it's going to be about two weeks. Opening statements on January 20. But I think it'll be over in a month.

SERWER: Yes, it could, and the thing is, I think this thing, if it ends quickly, I think she will bounce back from this. I don't think her career is over at all, especially if she comes out favorably out of this whole thing.

TOOBIN: I think so because you know what? "Martha Stewart Living," it's a really good magazine. I mean that's the thing, it's a good...

SERWER: He gets a lot of recipes.

TOOBIN: No, I...

SERWER: He does a lot of cooking.

TOOBIN: No, I want...

SERWER: No, it is. It's very well put together.

TOOBIN: No, it's a very, it's a good product.

HEMMER: And the holiday needlework that he put together.

SERWER: Oh, my goodness.

TOOBIN: The doilies.

(CROSSTALK)

HEMMER: Talk to you later, OK?

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com