Martha Boo-Boos Explained

By Joe Bob Briggs
June 6, 2003

It's especially necessary now that the Martha Backlash has begun, with various voices--including Martha's--being raised to demand, "What did Martha do to hurt anybody and why are they persecuting her?"

The words "insider trading" and "securities fraud" just don't seem to pack much wallop with the KMart faithful, do they?

"Well, it's not like she held somebody up with a gun."

"Well, it's some kind of complicated technicality."

"How could she possibly be guilty? It was only $45,000 she saved, and she was worth a billion."

If Martha's innocent, then I admire her for defending herself instead of taking the easy route of a lame settlement with the SEC. The fact of the matter is, we won't know whether she's innocent for some time now. Hey, here's a concept: let's wait and find out!

I don't know what the goal of her media strategy is, though, putting full-page ads in USA Today and launching a "Martha Is Innocent" Web site, but let's hope it's not intended to influence a jury. (Martha? Be devious? Nooooooo!) She has an incredibly large legal team and a professional "crisis manager," and her entourage looks like John Gotti's, but none of that should matter if she did indeed do what the government says she did.

Apparently here's what they believe:

On December 27, 2001, Martha got a call from Peter Bacanovic, her broker at Merrill Lynch. The call was taken by Ann Armstrong, Martha's long-time assistant.

Bacanovic said something about the stock of ImClone, which Martha held 4,000 shares of. Among the things he could have said:

"The FDA is issuing a report tomorrow that ImClone's new cancer drug has been rejected for review." (Definitely insider information. A felony for Bacanovic, but not for Martha unless she acts on it. Since she DID act on whatever he said, bad news for Martha if she knew this.)

"Your friend Sam Waksal, head of ImClone, is selling all his ImClone stock and telling his family to do the same." (Probably insider information as far as Bacanovic is concerned, but Martha doesn't know why Waksal is selling. He might just be planning to buy a yacht.)

"I think ImClone stock is going to crash tomorrow." (Not inside information at all, just a stockbroker giving advice to his client.)

At any rate, Martha sold her 4,000 shares, and the next day the stock did indeed tank. Eighteen months later, Waksal pled guilty to inside-trading charges and was sentenced to six years, three months in prison. How does that affect Martha?

It means that something illegal WAS going on that day. So the question in Martha's trial becomes the Watergate question: What did she know and when did she know it?

There are two key witnesses to tell us that:

1. Douglas Faneuil, a Merrill Lynch assistant broker working for Bacanovic. Faneuil is the guy who was on the phone with Martha's office that afternoon. He's already pled guilty to a misdemeanor--accepting gifts in return for his silence!--which doesn't look good for Team Martha. On the other hand, we have no idea what he'll say in court. He could say, "I told her the whole story" or he could simply say "I passed on a recommendation to dump her ImClone shares."
2. Ann Armstrong, Martha's publicity-shy executive secretary. She's probably going to testify that a month after the transaction, and after the FBI had gotten involved, Martha asked her to change the phone log for December 27. The original message said, "Peter Bacanovic thinks ImClone is going to start trading downward." The revised message said, "Peter Bacanovic re Imclone." Two minutes after asking Armstrong to make the alteration, Martha had a change of heart and told her to change it back to its original version, according to leaks from the Justice Department.

Okay, this part is weird, because:

1. It's not illegal to change your phone log, especially if you haven't been served with any search warrants--but it looks bad.
2. The original message--"Peter Bacanovic thinks ImClone is going to start trading downward"--is actually favorable to Martha. That's a broker doing his job. There's nothing criminal about it. So why did she want to change it in the first place?

Answer: Because of what she told the FBI when they first interviewed her. She said she had a standing sell order with Bacanovic, and that if the stock got to a certain price, he was authorized to liquidate it.

Two problems with that explanation:

1. Nobody can produce the standing sell order. It was not written down anywhere.
2. If she had a standing sell order, what did she talk to Bacanovic about "re ImClone"? It sort of has to be one or the other. Bacanovic saying "ImClone is going to start trading downward" is a fundamentally different message from "ImClone is doing so well that it tripped the sell order."

Complicated enough for you? What's truly strange about it is that all Martha ever had to say was, "My broker called and said he thought I should sell. So I sold." End of case! Why get into stuff about automatic sell orders and phone logs?

Unfortunately that's the nature of white-collar crime cases. They're messy. So with such a welter of conflicting reports, people want to know, why not just take a pass on Martha? The feds have nailed the true bad guy, Waksal, so why hammer a woman on the fringes of the case?

Two reasons:

1. She was the CEO of a major publicly-traded corporation.
2. She was a director of the New York Stock Exchange.

It matters because, once you're involved with publicly- traded corporations, you're sworn to protect the investment community, which includes widows and orphans who invest in mutual funds in Nebraska. It may sound corny, but the rest of America is made up of people who don't get calls from Peter Bacanovic, much less Sam Waksal. They're not in the loop.

Who did Martha hurt (if she's guilty)? Everybody who bought ImClone on the 27th, and everybody who sold it after the 28th.

"But we're talking about pennies per person."

It's a robbery. It's like a guy who steals $50 from a 7- Eleven without a weapon. We don't just make him pay the $50 back. We go ahead and give him a felony conviction and some jail time because of a principle, not the amount of the robbery. And the reason we do that is that we don't like his brazen attitude, his belief that the rules don't apply to him.

Martha's attorney, on the other hand, gave three reasons for the prosecution of his client:

1. She's high profile.
2. She's a diversion from more important cases, like Enron and WorldCom, in which the feds have been unable to jail anyone.
3. She's a woman 

Apparently this attorney, Robert Morvilla, thinks they were inventing new reasons every day to indict her. Sticking with a single motivation might have been a better course--like, uh, they misread the phone log? As Martha probably could have told him, three themes in the same room are probably going to clash.

That's not a good thing.

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