The Silence of the CEOs

Stick up for Martha, for your own sakes


If only Attorney General John Ashcroft could cow Al Qaeda as successfully as he has CEOs of publicly traded companies, the U.S. might be making more progress in the war against terror. How else to explain the silence with which corporate chiefs around the country greeted the chilling criminal indictment of the Martha Stewart Living Omnimedia, Inc.'s CEO on the charge of professing her innocence of insider trading allegations leaked to the media by anonymous government sources? Is it because Martha Stewart is a woman and most CEOs are not? Not really. There are plenty of high-powered female CEOs of public companies, and nary a peep has been heard from them either.

The silence is ominous because the government's criminal case, scheduled for trial later this month, is transparently thin. Yet the implications for officers of public companies are enormous. The Securities and Exchange Commission's civil insider trading charges against Stewart are (as I wrote in Reason in October), flimsy, and the Justice Department has decided against pursuing criminal charges of insider trading. Yet Stewart could now go to prison for making a public statement during the investigation of those charges. The perversity of this situation does not faze U.S. Attorney General John Ashcroft, who, early in October, personally selected Stewart's prosecutor, James Comey, the current U.S. Attorney for the Southern District of New York, to be his new number two man at the Justice Department.

Ms. Stewart has been charged with criminal securities fraud because she and her lawyers publicly declared her innocence in connection with her private sale, in December, 2002 of a small amount of stock in another company, Imclone. This exercise of pure free speech, Ashcroft's Justice Department contends, was a "material false statement" made to influence the stock price of her company, Martha Stewart Living Omnimedia, in violation of SEC Rule 10b-5; for that, Ashcroft believes, she should go to prison.

In a brief filed in federal court in October, Ms. Stewart's lawyers offer several hypotheticals of comparable "crimes" under the Ashcroft Justice Department's new theory:

• A CEO of a successful, conservative, family-oriented Fortune 500 company falsely denies accusations of being a homosexual, resulting in a rebound in the company's stock price.

• Press reports inaccurately state that another CEO has an advanced form of cancer and will die within four weeks. The CEO falsely denies she has cancer but what she has, in fact, is treatable and no imminent threat to her life. The company's stock price goes up.

• The tabloids report that the CEO of a public company that distributes bibles is an atheist, something the CEO falsely denies, halting a slide in the company's stock price.

• A CEO deemed critical to the success of his company is accused of having an adulterous affair with a young woman and stocks plunge amid fears that he will be forced out of the company. He falsely denies the allegation and the stock price of his company rises.

Based on the Stewart indictment, John Ashcroft apparently believes all of these examples of statements on purely personal matters are crimes—securities fraud—for which the CEOs should do hard time. What Ashcroft has done by approving Ms. Stewart's indictment is to threaten prison terms for officers of companies who dare to exercise their First Amendment rights. This is bad for publicly held companies and worse for their officers.

Any public company or officer who comments on a pending government investigation concerning the company now does so at the peril of later being indicted for inaccurately or falsely denying the allegations of improper conduct. For the same reason, every officer of a public company is effectively deprived of the right to protect his or her reputation by denying public reports about purely personal matters which damage their good name.

To paraphrase Bob Dole in another context: Where is the outrage? Make no mistake. This is the most blatant attack by government on pure free speech in recent memory, made more chilling by the prominence—and wealth—of the target. If they can do it to Martha, they sure as hell can and will do it to the average American.

It's not only her fellow CEOs who have failed to come to Ms. Stewart's defense. Liberals have been missing in action also, including Martha's good friend, Senator Hillary Rodham Clinton. Curiously, most of those who have spoken out on Ms. Stewart's behalf are libertarians or conservatives—William Safire, Alan Reynolds, Larry Elder, Paul Craig Roberts, Mark Steyn, Jack Kemp, The Cato Institute, and the Washington Legal Foundation.

The lack of liberal support is disappointing, so let me remind Martha's liberal friends. John Ashcroft is still Attorney General. He and civil liberties are still estranged. An indictment of someone as prominent as Martha Stewart after an agonizingly long seventeen-month investigation could not have happened without Ashcroft's blessing. Ashcroft is the one who picked Martha's prosecutor to be the second most powerful person at the Department of Justice.

The law here is clear. The First Amendment requires strict scrutiny of any attempt to criminalize pure speech. The First Amendment protects in nearly absolute form the right of a person to speak out in defense of her reputation; to assert her innocence of a crime; and to deny false leaks from anonymous government sources on a matter of public concern. All three apply to the statements Ms. Stewart made for which John Ashcroft seeks to imprison her. That the government would even bring such charges in the first place demonstrates the contempt which Ashcroft and his new top deputy hold for the First Amendment.

Government attempts to infringe civil liberties ought to be a critical concern for everyone, regardless of their politics. Yet we are rapidly closing in on twelve consecutive years of two U.S. Attorneys General, one from each party, with a minimal level of legal competence and a maximum hostility to the most fundamental American freedoms. On her watch, Janet Reno brought us Ruby Ridge, Waco and the midnight kidnapping of Elian Gonzalez, delivering the Cuban boy to a totalitarian dictatorship before a federal court of appeals could forbid her from doing so. Reno's disregard for civil liberties deserves a place in history alongside A. Mitchell Palmer, Woodrow Wilson's red-baiting Attorney General who imprisoned both the Socialist Eugene Debs for opposing U.S. involvement in World War I and a Hollywood producer for portraying our ally Great Britain in an unfavorable light in his film on the American Revolution.

John Ashcroft is determined not to let these two Democrats have all the glory. He's off to a good start. Martha Stewart is only his latest victim. She won't be the last.