Stewart receives an award at the 1999 National Magazine Awards in New York. Martha Stewart Living magazine, her biggest enterprise, grew from a catering business and a series of books on entertaining. The magazine claims a circulation of more than 2 million and has spawned publications including Martha Stewart Weddings, Martha Stewart Baby and Martha Stewart Kids. (AP)
NEW YORK — Defense attorney J. Michael Nolan hasn't seen a witness list and he isn't familiar with the physical evidence or other details of the government's case, but he already knows what his final words to the jury would be: "If it wasn't Martha Stewart, do you think we'd be here?"
That's the money line, and if Nolan were defending Martha Stewart, he'd build his whole case around it.
Like Nolan, a New Jersey-based white-collar crime specialist, defense lawyers around the country have been buzzing about the Stewart case since a federal grand jury indicted her Wednesday on charges of conspiracy, obstruction of justice, lying to investigators and securities fraud. The charges stem from her December 2001 sale of stock in biotech firm ImClone Systems Inc., formerly run by her friend Samuel D. Waksal.
The consensus: Stewart's case is certainly winnable, though her opponent, U.S. Atty. James B. Comey, is off to a strong start.
For one thing, Comey didn't make Stewart do the "perp walk." Some prosecutors like to slap handcuffs on high-profile defendants and parade them in front of the news media for maximum humiliation. There is a trend away from this practice, experts said, and Comey was well-advised to avoid it in Stewart's case, lest it backfire and build sympathy for her.
Another smart move was Comey's choice of criminal charges, lawyers said. He refrained from hitting Stewart with a splashy but tough-to-prove insider-trading charge, leaving the Securities and Exchange Commission to pursue that in a civil suit.
Still, attorneys say there are strategies that could tip the scales in Stewart's favor. Here are a few of them — some already being pursued by Stewart's defense team:
Nolan calls ImClone "a SoHo stock," referring to the trendy Lower Manhattan neighborhood where thirtysomethings have been known to hang out and talk about getting rich. The implication is that because of Waksal's visibility as a New York socialite, his company was undoubtedly the subject of cocktail chat among young professionals.
"I bet there are 25 people who traded that stock" and could have been pursued by the government, Nolan said, "but they're only charging her." In other words, Nolan's mantra to the jury would be that the government has singled out Stewart for prosecution because she's rich, famous and female.
Attack the Weakest Link
The shakiest part of the indictment, defense lawyers agree, is the securities-fraud count.
The government contends that Stewart issued news releases last June that gave a false description of events surrounding her ImClone trade. By making those false statements, the indictment states, Stewart was attempting to protect the value of the stock of her own company, Martha Stewart Living Omnimedia Inc., and thus was defrauding the investing public.
"How can they tell whether she was trying to manipulate the stock or just protect her own reputation?" asked Rusty Hardin, the theatrical Houston litigator who represented accounting firm Arthur Andersen after the Enron Corp. bankruptcy.
It is this uncertainty, Hardin said, that he'd keep pounding away on. "So much depends on their interpretation of what she knew and meant when she said certain things."
Any case that hangs on a defendant's private intentions, said Hardin, a former government prosecutor, leaves ample opportunity to sow reasonable doubt in jurors' minds.
"I would use that trumped-up charge" on securities fraud, Nolan said, "to adversely impact the other charges."
Face Inconvenient Facts
One troubling accusation for Stewart is that she opened a phone log on her office assistant's computer, temporarily changing a potentially incriminating message from her broker, Peter Bacanovic.
The indictment alleges that she altered a message reading "Peter Bacanovic thinks ImClone is going to start trading downward" to "Peter Bacanovic re: ImClone." Later, according to the indictment, Stewart directed her assistant to restore the message to its original wording.
An inconvenient situation, lawyers say, but hardly fatal.
"Are there 12 people in the world who haven't been faced with an ethical dilemma?" Nolan asked. He would use the incident to show that Stewart may have been tempted but ultimately did the right thing.
"Of course, you hope she didn't change it back on advice of counsel, but because she came back to Jesus," said Laura Ariane Miller, who heads the white-collar defense team at Nixon Peabody in Washington.
I Love New York
Nobody welcomes a federal indictment, but if Stewart has to go to trial in a case like this, the experts say, she should thank her lucky stars it will happen in New York.
"I'm an unabashed lover of New York juries," Hardin said.
He recalled a contract case he once tried in Manhattan in which 65% of the jury had graduate degrees. Among the advantages for Stewart of a well-educated and relatively well-off jury pool is the likelihood of finding jurors who are sophisticated about investments. They might not find it hard to understand that for some people, $45,000 — the amount Stewart allegedly gained from her ImClone trade — is not a lot of money.
"Kmart shoppers in Iowa are saying, 'Until these allegations are cleared up, we're not buying any more Martha Stewart sheets and towels,' " Miller said. "Do they even have Kmarts in Manhattan?"
On the other hand, even a Manhattan jury might react harshly to someone who seems overprivileged, cautioned Wyoming trial lawyer Gerry Spence, who once represented the highly privileged Imelda Marcos.
In a prolonged trial, Spence said, a celebrity defendant eventually "fades into the background," while the main actors — the lawyers — assume prominence. For that reason, Spence said, Stewart would do well to avoid lawyers "whose ties cost more than those jury members make in a month."
'Is That All You Got?'
Depending on how the jury reacted to the government's case, Nolan said he might try the no-defense defense.
"You just stand up and tell them, 'We've got nothing to say, folks,' and sit down," Nolan said.
It's risky, but silence can be powerful in the face of a weak case from the prosecution. "You never make that decision until you see who's in the box and get a feel for how it's playing out," Nolan said.
The strategy worked beautifully for Ray Donovan, labor secretary under Ronald Reagan, whose defense declined to call a single witness during his 1987 corruption trial. After the government had spent nine months laying out its case, the jury took just nine hours to acquit Donovan on all charges.
Let Martha Be Martha
There is no point in portraying Stewart, a former stockbroker with a diploma from elite Barnard College, as naive, the experts agree.
If she's crisp and a bit aggressive, don't run away from it, they say. That describes a lot of New Yorkers, after all. And with all her TV training, "she'd be a fabulous witness," Nolan said.
Notes Hardin: "Martha Stewart in some quarters suffers from a societal bias against strong women. But she's going to go to trial in a city that elected Bella Abzug to Congress, so I don't think it should be a problem."
Times staff writers Lisa Girion in Los Angeles and E. Scott Reckard in Orange County contributed to this report.