Stewart Case Focuses On Cover-up, Not Insider Deal

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It’s rare that prosecutors bring criminal charges for insider trading, and the case filed yesterday against Martha Stewart is no exception, the Boston Globe says. It focuses instead on the cover-up that Stewart and her former stockbroker allegedly committed to hide their trading in ImClone Systems Inc. as shares in the biotechnology company fell in late 2001.

More broadly, the Globe says, the case shows a more aggressive legal strategy that some have argued prosecutors should bring to cases of corporate wrongdoing.

Since the collapse of Enron and WorldCom Inc., the Justice Department has been under much pressure to show it will be aggressive in prosecuting corporate fraud, and it has tried to do so in a variety of high-profile cases.

“It’s a little odd” that the case against Stewart lacked charges on the supposed insider trading, since it was at the heart of the affair, said Harvard Law School professor John Coates. A likely explanation is that the main evidence of insider trading would be the word of Bacanovic’s former assistant, an unpredictable situation in court, Coates said. In contrast, the criminal case against Stewart centers on her alleged attempts by to hide wrongdoing, simpler facts to prove.

Jeffrey Rudman, an attorney at Hale and Dorr in Boston, said the case’s lesson is the one he counsels his own corporate clients: “Just tell the truth, what follows is a lot less painful than what follows from not telling the truth.”


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