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How do you read the Martha Stewart indictment? Perhaps you read it as the story of a self-made woman who rose from obscurity to wealth and fame, and then for a comparatively trivial sum — or to protect her reputation, or (as the government contends) to help a friend — obstructed a federal investigation. Or perhaps, reading the indictment more favorably to Stewart, you discern publicity-hungry prosecutors using technical arguments to advance their careers by charging an international celebrity. Whatever your take, most likely you haven’t actually read the 41-page indictment itself, but only news reports about it. That’s understandable. Yet lawyers will benefit much from a close reading of the charges. Its tantalizing details are like clues on a wilderness trail that hint at what lies ahead, including conflicts that may have prompted hidden tactical moves and will surface at any trial. Begin with these two remarkable facts: First, defendants ordinarily retain lawyers after they commit their alleged crimes. In contrast, all the crimes charged against Stewart were allegedly committed while she was receiving the advice of excellent defense lawyers at Wachtell, Lipton, Rosen & Katz — one of the nation’s best law firms. Three times, in fact, the indictment’s chronology refers gratuitously to Stewart’s lawyers (though not by name). Second, the government charges that on one occasion a lawyer for Stewart actually, though unwittingly, helped her commit securities fraud. Begin with the stock sale. Stewart sold her Imclone shares on Dec. 27, 2001. The indictment charges that thereafter Stewart and her Merrill Lynch broker, Peter Bacanovic, repeatedly covered up the circumstances of this sale during insider trading investigations by the Securities and Exchange Commission and the U.S. Department of Justice. Except for the charge of securities fraud, discussed below, that’s the essential claim. The time line is quite clear, and tells us a lot. On Jan. 7, 2002, SEC lawyers questioned Bacanovic about Stewart’s stock sale. Stewart was one of Bacanovic’s most important clients and the two had a “close personal relationship,” the government says. Consequently, we might assume that Bacanovic told Stewart about the SEC inquiry shortly after he was questioned, which is what the government claims, although Stewart denied it (falsely, says the indictment). Then, on Jan. 25, 2002, the Federal Bureau of Investigation and the U.S. attorney’s office in Manhattan asked to interview Stewart. Six days later Stewart allegedly altered a phone message from Bacanovic “following a lengthy conversation with her attorney,” although she subsequently restored “the message to its original wording.” Pause for a moment on the reference to “a lengthy conversation with her attorney.” Why did the government choose to mention it? And how does the government know the conversation was lengthy or that it was with only one lawyer? (Later, the government had no trouble referring to lawyers in the plural.) Perhaps Stewart or her lawyer volunteered this information. But why would they? And in any event, why would they characterize the duration of the meeting? Another possibility is that Stewart’s lawyers have already been subpoenaed to testify. That may explain a change in the defense team last summer. But even if the lawyers have not been subpoenaed, the way the government chose to craft the indictment suggests that they yet may be. The SEC, FBI, and U.S. attorney’s office finally got their interview with Stewart, “accompanied by her lawyers,” on Feb. 4, 2002. Here is a second reference to lawyers, plural this time. Nine days later Bacanovic testified under oath before the SEC. Stewart was interviewed again on April 10, this time by telephone. In each of these interviews, the government claims that the defendants lied and thereby obstructed justice. The lies were consistent, the government claims, because the defendants had conspired to present the same false story. In a final reference to a lawyer, the indictment says that Stewart used counsel to facilitate her crime. The securities fraud count charges that Stewart “made false and misleading public statements” about her Dec. 27 sale of Imclone stock in “an effort to stop or at least slow the erosion of [her company's] stock price.” One way she is said to have done this is by “caus[ing] her attorney … to provide … The Wall Street Journal” with false information in June 2002. Under rules of evidence, when a lawyer talks for a client, his statements are usually the vicarious admissions of the client. We should expect the government to offer counsel’s statement to the newspaper against Stewart at trial. How could it be that a sophisticated businesswoman, a former stockbroker, could commit federal felonies in order to conceal insider trading activity that — as the government itself has conceded — would not have been the subject of prosecution, when all the while she had the active counsel of prominent lawyers? The defense might argue that the question answers itself. Because it is not possible to imagine conduct so stupid, it could not have happened. But there’s another possibility. Stewart may have lied to her lawyers, who chose to believe her, while she and Bacanovic worked to concoct an exculpatory story. Ignorant of the government’s investigative tools and the broad reach of obstruction and false statement laws, the government may say, Stewart and Bacanovic thought that as long as they were consistent, they were safe. That brings us back to the “lengthy conversation,” the most intriguing phrase in the indictment, at least for lawyers. Every lawyer, certainly every criminal defense lawyer, knows that many clients lie even when they have nothing to hide, legally speaking, and certainly many lie when they do. And every lawyer knows that the observation that the cover-up is worse than the crime is a clich� precisely because it is so often true. So one has to wonder what Stewart’s lawyers told her in their lengthy conversation — what cautions did they give her, and how readily did they accept her story? — before she took that first step, as the government claims, and altered her phone log? (Even though the indictment says that Stewart then undid the alteration, the prosecution is likely to use the allegation to prove Stewart’s consciousness of guilt.) Will we ever know the content of the conversation? We might. The government appears ready to claim that Stewart’s lawyers, in their representations to the government and by releasing a public statement in Stewart’s name, unknowingly furthered her criminal purpose. Citing the crime fraud exception to the attorney-client privilege, the government can then seek testimony from the lawyers, if it hasn’t already done so. That, in fact, may be why the government took pains to refer three times to Stewart’s lawyers in the indictment. In June the New York Law Journal and The New York Times, citing unnamed sources, reported that lawyers for Stewart might be called as witnesses. The lawyers have declined to comment. While either side might call them, of course, the indictment’s multiple reference to Stewart’s lawyers implies that the government believes that their testimony will favor it. Here is where the law strongly favors the government. To defeat privilege, the government needs only to show that Stewart’s objective in her communications with counsel were criminal or fraudulent. To meet this burden, it need not prove the crime or fraud itself but only a “reasonable basis to suspect the perpetration of a crime or fraud, and that the communications were in furtherance thereof” [ In re Grand Jury Subpoena Duces Tecum, 731 F.2d 1032 (2nd Cir. 1984)]. In evaluating whether that burden is met, the judge can review the allegedly privileged communications in camera [ United States v. Zolin, 491 U.S. 554 (1989)]. In fact, the crime-fraud exception can be proved, and the privilege defeated, using only those communications [ In re John Doe, Inc., 13 F.3d 633 (2nd Cir. 1994)]. Is all this speculation? Sure, but it’s informed speculation, and it’s bolstered by an announcement from Stewart’s Wachtell lawyers last summer. “Given the allegations swirling around Ms. Stewart,” they said, “we decided to add [Robert Morvillo] to our team. He is one of the best lawyers in the country, and we’re glad to have his help.” It’s always nice to get a compliment, but the law firm making that statement has some of the best lawyers in the country, lawyers who know their way around a criminal courtroom. They don’t need Morvillo to do their job. And as far as can be seen, Morvillo is not just helping out. He’s running the show, apparently alone. When a prominent client, especially one under criminal investigation, augments or replaces her defense team, the ostensible explanation for the change is not necessarily the true one. Has the government let it be known that Wachtell lawyers may be witnesses, or that their statements may be offered as the vicarious admissions of Stewart herself, even if the lawyers are not called as witnesses? Does Wachtell have information from its longtime representation of Stewart’s company that makes it improper for the firm to defend her against a charge that she made false statements to buttress the value of its stock? The explanation for adding Morvillo was carefully worded, to say the least. The language implies that the only purpose was to add legal talent. But the precise words (“Given the allegations swirling around Ms. Stewart”) are vague enough to permit a different inference, namely that those “swirling allegations” were likely to create a conflict for Wachtell lawyers either because their testimony or their statements might be evidence at trial or because of the firm’s work for Stewart’s company. And the disappearance of Wachtell from the defense team contradicts its prediction that Morvillo was merely an addition. In the months ahead we are likely to learn a lot more about how Stewart landed in her current predicament. Maybe she did have a stop loss order on her Imclone shares or at least believed she did. If the jury credits either possibility, the government’s case is toast. Right now, of course, all conclusions must remain tentative. But for lawyers, at least, reading the lines and between the lines of the indictment is irresistible. Stephen Gillers teaches legal ethics and evidence at New York University School of Law. E-mail: [email protected]

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