I was transferring Reversible Errors--excuse me, Scott Turow's Reversible Errors--from Tivo to videotape this morning, and it reminded me that the lawyer turned best-selling author had an op-ed piece in The New York Times last week explaining why we should "Cry No Tears for Martha Stewart." Turow concedes that Stewart's ImClone stock sale was not illegal but says it should have been. His argument is twofold:
1. When Stewart's broker, Peter Bacanovic, told her (through his assistant, Douglas Faneuil) that ImClone founder Sam Waksal and his family were selling their shares in the company, Stewart in effect received stolen property, since Bacanovic and Faneuil were bound by Merrill Lynch policy not to reveal that information. "She had to know she was in possession of confidential information she had no right to have," Turow writes, "and by trading on it, she was a clear accessory to the Merrill employees' misappropriation of it."
Contrary to Turow's analogy, information is not property. While Bacanovic and Faneuil violated their obligations to Merrill Lynch and to their clients, Stewart was not bound to refrain from acting on what they told her, any more than a newspaper reporter who received the same information from the same source would be obligated to keep it a secret.
2. When Stewart sold her stock, she screwed over "the poor schmo" who bought it, since he was in no position to know the Waksals were dumping their shares. "In my book," Turow writes, "that's fraud. Martha Stewart ripped her buyers off as certainly as if she'd sold them silk sheets that she knew were actually synthetic."
As the legal scholar Henry G. Manne points out in response to this argument, stocks are bought and sold anonymously by large numbers of people. If Stewart had not sold her shares, someone who had independently decided to buy ImClone would not have been any better off. (I suppose she could have tried to help such buyers by publicizing the Waksals' sales, but by Turow's logic that would have amounted to distributing stolen goods.) Stewart did not sell her stock directly to any particular person, let alone make any representations about ImClone's prospects. A stock seller usually expects the price to go down, while a buyer expects the opposite. Is it fraud in Turow's book every time a seller has better information than a buyer?
This is not to say that Stewart is a paragon of honesty. She clearly was worried that her transaction might be considered illegal, and her attempts to conceal the motivation for it led to her convictions for lying to the government and obstructing justice. But as Turow admits, Stewart's anxiety, though understandable given the inscrutability of securities law, turned out to be unjustified. Thus it's fair to say that Stewart was convicted of covering up a crime she didn't commit.