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Martha Stewart Guilty

Aired March 5, 2004 - 16:30   ET


ANNOUNCER: CROSSFIRE. On the left, James Carville and Paul Begala; on the right, Robert Novak and Tucker Carlson.

In the CROSSFIRE: A verdict in the Martha Stewart case. From the perspective of ordinary investors, is it a good thing?




ANNOUNCER: Live from the George Washington University, Paul Begala and Tucker Carlson.

PAUL BEGALA, CO-HOST: Hello, everyone. Welcome to CROSSFIRE.

A federal jury this afternoon convicted Martha Stewart and her former stockbroker of crimes, including obstruction of justice and the crime of perjury.

TUCKER CARLSON, CO-HOST: Are your investments safer with Martha Stewart headed to jail? Are you finally free to live without fear? That's our debate.

But first, let's get an update on the case from CNN Financial News reporter Allan Chernoff in New York.

Allan, what's going on?

ALLAN CHERNOFF, CNN CORRESPONDENT: Well, a slam-dunk victory for the government, no question about it, Martha Stewart convicted on all four counts against her, those being conspiracy, obstruction of justice and two counts of false statements, the jury deciding that Martha Stewart and her stockbroker, Peter Bacanovic, clearly were lying about her sale of ImClone stock back in December of 2001, the jury believing that Martha Stewart and the broker were covering up the true reason for her sale, that she had received an insider tip that the then chief executive of ImClone was dumping all of his stock back on that date, December 27, 2001.

Now, Martha Stewart on her Web site did post a message saying that she was disappointed. Her attorney, Robert Morvillo, moments ago said before the courthouse that he views this as a loss in the first round, and he looks forward to going on to the second round, meaning he is definitely appealing this case, and he said he hopes to eventually win the case.

The U.S. attorney in charge of the prosecution told observers here he was gratified.


DAVID KELLEY, U.S. ATTORNEY: If you are John Q. Citizen or Martha Stewart or Peter Bacanovic, we're going to go after you if you make these types of lies. We do cases each and every day. We do large ones. We do small ones. And we do cases that draw some attention, but some cases that don't draw all this attention. Nonetheless, all those cases are equally important.


CHERNOFF: One of the jurors did speak to the media after the verdict, and he said that this is a victory for the small guy and it is a message to the bigwigs, a message that they have to abide by the law.

So, clearly, the jurors not impressed at all with Martha Stewart's celebrity. The juror also said that the most important witnesses in his mind in the case were Ann Armstrong, the assistant to Martha Stewart, who actually took the message from stockbroker Peter Bacanovic back on that date she sold her stock, the message from the broker that he expected ImClone to begin trading downward.

And also the other important witness, he said, was Mariana Pasternak, Martha Stewart's close friend who was traveling with Martha Stewart when she sold her stock. Mariana Pasternak testified on the stand that Martha Stewart had told her, "Isn't it wonderful to have a broker who tells you these things?" referring to Peter Bacanovic telling her that Sam Waksal, then head of ImClone Systems, was trying to dump his stock -- Paul.

BEGALA: Well, Allan, you mentioned the prospect, the certainty of an appeal by Martha Stewart's attorney. But what happens to Martha herself next?

CHERNOFF: Well, next, she's going to have to come back here on Monday and report to the probation office here. The judge later on is going to be getting a pre-sentencing report from the probation department of the court system, and that will give the actual sentencing guidelines.

Now, keep in mind, the maximum theoretical sentence here for Martha Stewart would be 20 years, five years on all counts. That's not realistic. What's really going to happen here is that the Sentencing Commission, the U.S. Sentencing Commission, is going to take a close look, see that she has no criminal background, and then report to the judge, give her sentencing guidelines.

Those would be -- these are the minimum guidelines, according to the Sentencing Commission. We spoke to them earlier today. For a conspiracy, 10 to 16 months. For false statements, from zero to six months. And for obstruction, again 10 to 16 months. But the judge has the final authority here. So she can certainly give Martha Stewart much less of a sentence. And, of course, as we pointed out, her attorney does intend to appeal.

BEGALA: Allan Chernoff, CNN's ace financial news reporter, thank you for bringing that to us from New York.

Well, as you heard, just minutes ago, one of the jurors in the Martha Stewart trial told reporters that he hopes the verdict will make it just a little bit safer for ordinary investors.

In the CROSSFIRE, criminal defense lawyer and ace attorney here in Washington, Bernie Grimm.

Bernie, does this make it any safer for the little guy?


Crimes like these never, ever go prosecuted, because you and I talk, you tell me listen, Bernie, you know, you bought some stock the other day, it's going to take a plunge, I just got a feeling you ought to dump it. It's nothing illegal, per se, but it goes on all the time. The only way to prosecute it is if you tell somebody or I tell somebody. So it's virtually an unenforceable crime.

The problem is, is Martha Stewart's lawyers walked her in to the U.S. attorney's office and she blabbed about this whole thing, which was the -- it's like the fish on the wall and says underneath the fish on the wall, I wouldn't be here if I kept my mouth shut. So...


CARLSON: Well, wait a second. Let's keep in mind that this woman, annoying as she may be, that's not a crime, as you know.

GRIMM: Right.

CARLSON: May be going to jail. So the original premise of this investigation was the notion that she had been tipped off by Sam Waksal about this imminent FDA report. That turns out not to be true.

GRIMM: Right.

CARLSON: So isn't it a bit much to send her to jail for lying to the government when she went in voluntarily? Isn't that sort of way out of proportion?

GRIMM: No question, completely disproportional.

In fact, in theory, you get punished for going in to the government and saying, listen, this is what I did. And you end up owning up to what happened and then they use your own words against you and prosecute you. So I think it is unfair. Under the guidelines, though, she's -- not to get hyper-technical, but it's what's called zone B. So she could qualify for what's called home detention, meaning she would have to wear an ankle bracelet. So she could be on house arrest.

CARLSON: But, to be super technical, as you put it...

BEGALA: She has a really nice house.

CARLSON: She certainly does.



GRIMM: She likes to spend time in the garden, so things would work out fine.


CARLSON: But isn't this about the political career of the prosecutors who brought these charges in the first place?

GRIMM: Oh, yes.

CARLSON: That's what is really going on, isn't it?

GRIMM: Oh, there's no doubt about it. It's for their own gamesmanship.

I'm if it was Joe Schmoe who walks down Wall Street, we wouldn't even be having this discussion.

CARLSON: Well, isn't that morally wrong?

GRIMM: Morally wrong, I don't know. I don't know if my wife's watching. I don't want to get into morals and all that stuff. So...


BEGALA: Well, let me focus on this -- the third of the convictions, which is two counts of lying to the government. Now, there used to be something -- I went to law school. I have a law degree. I never practiced, though. There used to be something called the exculpatory no. The cops grab you and say, "I didn't do it."

GRIMM: Right.

BEGALA: That's essentially what they're going to say. Now, if lying to the government is a crime, let's prepare the cell for George W. Bush. Dick Cheney would be next door.

GRIMM: Right. Right.

BEGALA: I mean, this is now a federal offense?

GRIMM: Well, essentially, what they prosecuted her for is that they had an ongoing investigation that her no aborted that investigation and prevented it from being facilitated that led to...

BEGALA: But doesn't every defendant say no? Except on "Perry Mason," they all say no.

GRIMM: I'll tell you, every one of my clients that comes to me before the police get to them, they better say no or they're not going to be my client for long. So they need to keep their mouths shut.

BEGALA: That's fascinating.

Why, though, do you suppose, as a defense lawyer, they did not put Martha Stewart on the stand? She is, I suppose annoying to some. I think she's terrific. But she's...

GRIMM: Yes. I guess you hear the saying out there, the queen of mean.

I don't know the woman. For all I know, she's like somebody's grandmother. But the problem is, is, that if she got on the stand, there were just too many unanswered questions. Her first version is that she dumped the stock for tax reasons. The next version was, we had a prearranged agreement to dump it at 60. So she would have just been all over the place with try to confront so many inconsistent statements.

BEGALA: So you would not have put her on the stand, if you were her lawyer?

GRIMM: Even though she was convicted, it was still the right decision by her lawyer. Whenever you go in a case, you go in it -- and I've tried close to 200 trials -- you always try to do it with the theory, how can I do this case without putting my client on the stand?

Because your client is sitting there because he or she is an idiot anyway, or else they wouldn't...


GRIMM: Or else they wouldn't have been -- or else they wouldn't have been caught in the first place. And I recognize some students out here that I've represented on some cases.


GRIMM: And I won't mention your names, just a small amount of marijuana.


GRIMM: But, you know, the problem is, is that they've opened their mouth and used bad judgment in the first place. And when you put a client on the stand, you're just putting your fingers in your ears and waiting for the firecrackers to start going off.

CARLSON: In those 200 trials, have you ever heard a juror say, as we heard a juror in the Martha Stewart trial say today, this was about something larger than the specific crimes alleged; this was an effort to send a message to society?


Yesterday, I had a verdict in a terrorism case over in Virginia, and it wasn't a jury trial. It was a judge trial. But, essentially, the message was that we are going to prosecute not only people overseas, but people here in the United States Muslims in what we believe are engaged in ongoing jihad against American citizens. And, essentially, it was a group of Muslim men playing paintball, using that as a training format to go overseas.

CARLSON: Have you ever -- at least my understanding of the case slightly more complicated than that -- but have you ever heard a judge say to the jury, look, consider just the facts of the case; this is about this defendant, these crimes alleged; it's not about society at large?

GRIMM: Right.

CARLSON: Do judges say that?

GRIMM: No, never, never.


GRIMM: You can't -- because what a judge says in their final instructions he or she will say, you can't consider who the defendant is or who the defendant isn't. You can't consider sympathy, bias, prejudice. You can't consider the fact that you may be in that jury room despising this woman. You have to decide the case just based on the facts.

BEGALA: Well, but let's think about the message, then. The juror -- Tucker's right. One of the jurors said, this sends a message to the little guys. I think it sends a message to President Bush's pal Kenny-boy Lay who is still roaming the streets of Houston after the Enron debacle.


BEGALA: What does that say, that this little woman gets hammered and not him?


GRIMM: Right. No, it's -- the message is almost, crime pays, as unfortunate the message. Sometimes, it does. Sometimes, it doesn't.

CARLSON: Then I'm wondering, speaking of politics, Martha Stewart, of course, is a good friend of now Senator Hillary Rodham Clinton of New York. Do you think it would be a good idea for Mrs. Clinton's office to issue a statement at this point explaining why she's adding another felon to her list of friends?


GRIMM: Boy...


GRIMM: Senator Clinton's got it coming at her from all sides. And I'm a huge fan of hers, but if she's a true friend, she wouldn't distance herself from...

CARLSON: So she's not a true friend, is what you're saying. She's basically turned her back on this poor woman.


CARLSON: ... the weight of the government to come down on.

GRIMM: Well, for example, I see what you guys do. I see what you do to Carville every night. And I don't know whether you guys are friends or not. It doesn't look like it. So...


BEGALA: Well, let me ask you more about the lawyering here. And I like second-guessing, OK? I like Monday-morning quarterbacking. And I want you to engage in it with me.

You're Martha Stewart's attorney. You impanel a jury of eight women and four men, when, in fact at least my own anecdotal experience is that most guys think she's just fine. She seems to bake cookies and she looks nice. And women hate her. So why put eight women on the jury if women don't like her?

GRIMM: When your client is a woman, you always impanel men as jurors, if you can. When your client is a man, you impanel women. Generally...

BEGALA: If your client's Michael Jackson?

GRIMM: Generally...


BEGALA: I'm sorry.


CARLSON: Very good.

BEGALA: That was terrible.

GRIMM: When your client's Michael Jackson, you might waive jury trial and ask the judge to decide the case.

BEGALA: But I'm -- so you're right, though. There is a more general thing that women don't feel sympathy generally for women. But Martha Stewart, I'm telling you, women don't like her.

GRIMM: Yes, I'll be wide open about it. It's really sexism. Women are more critical of women than men are critical of women and vice versa. CARLSON: Now how much did -- would a trial like this cost taxpayers? Do you have any sense?

GRIMM: Oh, my God. We're talking well over $1 million -- well over $1 million, jurors getting paid every day. The judge is getting paid, multiple prosecutors, SEC investigators, FBI investigators. None of the lawyers were -- none of the lawyers were court appointed. So that money was shelled out by Martha Stewart.

But if those people go to jail, it's actually an interesting question. If any of these people go to jail, we used to have to pay for their incarceration. Now people like Martha Stewart have to pay their own cost of incarceration, so, instead of us. So...

CARLSON: So but we're still talking about an alleged ill-gotten gain of, say, under 50 grand.

GRIMM: Right.

CARLSON: Up and against more than $1 million just in court costs.

GRIMM: Right. And everybody in this room had -- essentially had to pony up 10 bucks for this case.

BEGALA: Unbelievable.

Bernie Grimm, ace criminal defense lawyer, thank you for your time.

GRIMM: Thank you.

BEGALA: Walking us through this.

GRIMM: Thank you very much.


BEGALA: Any of you guys get in trouble, Bernie is your attorney.

GRIMM: Thank you.

BEGALA: Bernie Grimm, ladies and gentlemen.

Just ahead, more fallout on the Martha Stewart case. What will this mean for her company? And what will it mean for your ability to buy Martha's beautiful pastel sheets? Well, we'll have all of that and more when CROSSFIRE returns.

Stay with us.

ANNOUNCER: Join Carville, Begala, Carlson and Novak in the CROSSFIRE. For free tickets to the live Washington audience, call 202-994-8CNN or e-mail us at Now you can step into the CROSSFIRE.


CARLSON: All right, welcome back to CROSSFIRE.

Martha Stewart has been convicted of perjury and obstruction of justice.

Joining us now from Fort Lauderdale, Florida, is former prosecutor Wendy Murphy.

Welcome, Wendy.


BEGALA: Wendy, good to see you again.


BEGALA: Ms. Stewart's attorney has already announced to the public that he's going to file an appeal. Does she have a good chance of winning on appeal and having this conviction overturned?

MURPHY: You know, I really didn't see any big mistakes that I think the defense can hang their hats on. She's entitled to an appeal. I think an interesting question is whether she'll be allowed to stay out pending that appeal.

At the end of the day, I think the evidence was there and it really was up to the jury to figure out who they believed. And they have made it clear they believed the government's witnesses.

CARLSON: Wendy, give us a realistic estimate, or to the extent you can at this point, of how much time can she really be facing? What do you think she'll actually end up serving?

MURPHY: Well, the federal guidelines are pretty rigid. And, you know, we might all have our opinions about what amount of time she should serve, but the guidelines basically tie the judge's hands. Judges can go below the guidelines, but they have to write out their explanation for why they do that. So, what I've heard is that she's going to face somewhere between 1 1/2 to two years at most.

Again, the judge can go below that. But she's got to justify that by explaining her reasons in writing. And I'm not sure this judge is inclined to do that in this case.

BEGALA: Well, Wendy, as I understand it, the underlying charge that -- from which all of this grew, securities fraud, was thrown out by the judge for being without merit.


BEGALA: And so we the taxpayers have spent, oh, at least $1 million dollars in two years of investigation, in two months of trial, over fallout from the underlying crime which apparently wasn't even meritorious. Isn't this a colossus waste of taxpayers' money to save us and protect us from some lady who bakes cookies? (LAUGHTER)


MURPHY: You know, I agree with you. I agree with you.

CARLSON: Well, then, I sort of


MURPHY: I think this was morally disproportionate. The amount of money spent, the fact that they were using her as a whipping girl, I think that goes without saying. And I think, frankly, the government admits as much.

But is that right? The moral imperative in these kinds of corporate scandals, it seems to me, is not just to go after somebody so you can send a message, because we're all watching because it's Martha Stewart. It's to go after the people who have cost investors in this country billions of dollars because of corporate fraud.


MURPHY: You know, Martha Stewart's going to go to prison, but we're not going to get a dime back.

BEGALA: Well, then, but who are we? That's the one -- I sort of agree with you. But tell us who the government says the injured party is. On whose behalf is the government going to send Martha Stewart to prison?

MURPHY: Well, look, according to the government, they're doing this on behalf of the public good, to send a message, so that other people don't behave like this.

But, ultimately -- and if this was the only case that was out there, if this was the only bad corporate scandal out there, maybe they'd have a right to do this. But they're doing this because the country has suffered so much economically as a result of big corporate scandals. And because Martha Stewart's being prosecuted, what I want to know is, how is that going to repair all the economic damage?

What did she make, $40,000 that she wasn't supposed to make because of what she sold? She didn't commit insider trading or any kind of securities fraud. She lied. And she -- you know, she did something that most people would say, yes, that's wrong, but is it worth prison time? Is it worth millions of dollars in federal tax money to go after her? I think this was morally unjustified.


CARLSON: Well, OK, wait, let me just ask you. You're a former prosecutor. Is it known among prosecutors that, you know, being a prosecutor is just a way station on the journey to something more important, like elected office? Shouldn't there be a law that prohibits former prosecutors from running for anything? (LAUGHTER)

MURPHY: I'm not going to go there.


MURPHY: Look, prosecutors have to enforce the law. I think the problem is, the public becomes cynical and distrustful. They don't like it when the law acts as a big bully, because we want to be able to have faith that the way our tax dollars are being spent in terms of deterring bad behavior is, in fact, serving our collective interests.

And I think this was just a big old bucket of entertainment, frankly.

CARLSON: OK, Wendy Murphy, we have faith in you. Thanks a lot for joining us. We appreciate it.

BEGALA: And I hope you run for something, Wendy. Any time, I'll support you.

CARLSON: Well, I don't.


CARLSON: But I hope you come back on the show.

MURPHY: I'm going to hold you to that.

CARLSON: Thank you.

Up next, the effect on Martha Stewart's business empire, it can't be good. We'll find out what it is.

We'll be right back.


BEGALA: Welcome back to CROSSFIRE.

Not long after Martha Stewart was convicted in court today, the New York Stock Exchange halted trading in her company's stock, Martha Stewart Omnimedia.

In New York is Dave Humphreville, joining us in the CROSSFIRE. He's the president of the Specialist Association, which represents market-makers on the floor of the New York Stock Exchange. They're the ones who halted trading today.

Mr. Humphreville, welcome to CROSSFIRE.



CARLSON: Thanks for joining us.

Now, Mr. Humphreville, the point of this, as we've heard endlessly, was to protect the little guys. Presumably, there are little guys invested in Martha Stewart's company. How much money do you think, would you estimate, that they've lost or will lose?

HUMPHREVILLE: Well, it depends.

Obviously, the idea with the markets is to make sure that the investors are taken care of, that they all trade on public information available to everyone at the same time. What happened today was an example. Martha Stewart was trading around 13.50 or so. Around 1:00, there was information -- or, actually, around 2:00, when there was a rumor that a verdict had come in, the stock started trading up. Again, that's on speculation that she was going to be acquitted.

At the same time, people were shorting the stock. They were betting that she was going to be found guilty. So as it traded up to around $17, once then a verdict was coming out and being announced is when trading was halted. Again, that's because, once they say guilty or not guilty, people are going to push buttons and cascade orders into buy or sell depending on the verdict, and they'll be faster than the average investor who wants to profit by this news.

So what happens, they stop trading until that information is disseminated around the world and the judgment is made at that time what is this company now worth? The stock was halted...

BEGALA: So what do you think this means for her company, Omnimedia, and for Kmart, where she has a relationship selling her products? What happens to those stocks, do you suppose?

HUMPHREVILLE: Well, what happened -- we saw it right away what happened with Martha Stewart Living. It traded -- the halt was for half-an-hour. Then, again, huge numbers of sell orders came in. And then you have to decide where you're going to buy. And they repriced it and it reopened on over one million shares of volume at $11. So there's an immediate effect, a dramatic effect.


BEGALA: That is fascinating.

And, finally, is there a chilling message sent to Wall Street on this or is this another one-day story on the street?

HUMPHREVILLE: Not a chilling message. Actually, this shows the markets at their best. From a pure market standpoint, this is what's supposed to happen.


BEGALA: Dave Humphreville, I'm sorry to cut you off, but we have run out of time. I'm sorry to have asked you that question. We were out of time.

David Humphreville, president of the Specialist Industry Association on Wall Street, thank you very much.



BEGALA: Next, our viewers fire back to us on the Martha Stewart verdict. She's got more fans than you might think.

Stay with us.


CARLSON: Of course. Of course. That's exactly right.

Welcome back to CROSSFIRE. We have received a lot of e-mails from our viewers on both sides of the Martha Stewart story.

Gerd Metzdorff from Vancouver -- that's a foreign country to the north -- writes: "What an injustice in the Martha Stewart case. What good is it sending her to prison? Murderers walk free and she gets jail for something that is probably done daily on Wall Street."

BEGALA: Well, actually, in fact, I was thinking that before. They didn't teach me in law school about the fact that O.J. Simpson is playing golf and Martha Stewart is going to prison. I don't get it.

CARLSON: You know what they taught me in life? Don't talk to federal agents if you don't have to.



BEGALA: A few blocks from here, at George Washington University Hospital, John Ashcroft, our attorney general, is recovering from pancreatitis.

Mr. Attorney General, God bless. Hope you feel better soon.

From the left, I am Paul Begala. That's it for CROSSFIRE.

CARLSON: And from the right, I'm Tucker Carlson.

Join us again on Monday for yet more CROSSFIRE.

"WOLF BLITZER REPORTS" starts right now. Have a great weekend.



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