This is a partial transcript of The Big Story With John Gibson, July 3, 2002, that has been edited for clarity. Click here to order the complete transcript.
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BOB SELLERS, GUEST HOST: Martha [Stewart] may be taking most of the heat these days for possible insider trading, but how does she compare with the other Wall Street bad guys?
Joining us now, University of Colorado law professor Paul Campos.
Good afternoon, professor.
First, let's address Martha. How much trouble could she be in here?
PAUL CAMPOS, COLORADO UNIVERSITY LAW PROFESSOR: Well, she could be in a lot of trouble. She could be charged with a quite serious felony under the securities regulations, and it's certainly conceivable that she could do some jail time if the charges against her end up being proven.
SELLERS: And that would be based on the insider trading or the alleged cover-up associated with it?
CAMPOS: Well, both. I mean, what often happens in these cases is that the cover-up that follows the initial criminal act — hypothetically in this case — often ends up being worse than the initial act itself.
Insider trading, of course, is a serious felony. So I don't want to underplay how serious that is. But if there are further actions in terms of, for instance, trying to get people to lie, such as her broker or other persons, about her subsequent actions, that will, of course, only add to the seriousness of the situation.
SELLERS: Yeah. Now from what you know that's out there in the public, what do you think is the most damaging to her at this point?
CAMPOS: Well, I think the most damaging to her that's come out to this point is that the junior associate at Merrill Lynch changed his story and seems to be implying that he was pressured, essentially, to tell one story about the circumstances under which Martha Stewart sold her stock.
And, subsequently, he's told a very different story to the authorities. I think that, along with the initial allegation of the insider trading, taken together, makes for a potentially quite serious criminal situation for Martha Stewart.
SELLERS: All right. Let's turn our attention a little bit to the Enrons and WorldComs on Wall Street. How does what Martha Stewart allegedly did compare to what those companies have done?
CAMPOS: Well, the Enron and WorldCom situations are in a sense much more serious because they deal with many more people and much larger sums of money.
After all, Martha Stewart, if she did what she's alleged to have done here, apparently, saved herself something on the order of $43,000. So, certainly, her actions would have little or no effect on the overall economic situation of other ImClone stockholders. So, in that sense, it's not nearly as serious a kind of thing.
But, of course, at the individual level, it is a very serious thing because insider trading is a serious felony. And so WorldCom and Enron are really sort of social stories, stories that tell us something about America and the markets in the late 1990's, while Martha Stewart's situation, I think, becomes a sort of symbol for all that.
In and of itself, [Stewart's situation] is not particularly important in terms of its economic effects, which are negligible. But in terms of a sort of symbolic representation of American access and the privileges of the rich and dodging the rules — if you are high enough up in the system — she becomes a very important figure.
SELLERS: Well, let's look at the Enron and WorldCom without getting caught up too much in the details. We're talking about accounting shenanigans, if you will, and if it holds that that's what happened at these various corporations… do you think people are going to go to jail, and if so, what happened to the protection that the corporation is supposed to lend to you?
CAMPOS: Oh, well, I think that, certainly, in the case of WorldCom, if what appears to have taken place has taken place, I have very little doubt that people are going to go to jail.
SELLERS: Such as?
SELLERS: Allegedly the CFI that was categorizing expenses in a way to make their earnings look better than they really were?
CAMPOS: Right… WorldCom is different from Enron because, in the case of WorldCom, you have — allegedly — the most basic kind of accounting fraud.
The Enron situation involved some complex accounting issues of a kind that criminal-defense attorneys can make hay with, and it may be, in fact, difficult to end up securing convictions in some instances in the case of Enron.
SELLERS: In the Enron...
CAMPOS: In Enron.
SELLERS: But that seems the most blatant when you look at it… they knew they were playing a shell game, didn't they?
CAMPOS: Yeah, but this is one of the curiosities of the legal system in general and of business law in particular. There are many things that are actually quite scandalous that are perfectly legal that you can do in terms of corporate shell games and the like.
Now WorldCom, on the other hand, seemed to involve something much simpler, which is just the most straightforward kind of accounting fraud, and that's much easier to prove. There are many fewer defenses available… I think that, certainly in the case of WorldCom, some people are going to go to jail. That may well end up happening in the case of Enron as well.
And I think the Martha Stewart phenomenon just becomes a symbol for people of a kind of sort of generalized corruption and crookedness all over the system.
SELLERS: She can recommend how to decorate the cell, I suppose. She'll have some experience at that…
Let's take a look at the president today. Ari Fleischer coming out and talking about some disclosure stock sales over 10 years ago — about 12 years ago. Did you see that announcement, first of all? Should we read anything into that?
CAMPOS: I haven't actually seen the announcement. So I don't know really what to say about that.
SELLERS: All right… but we do know that Halliburton, where Vice President Cheney worked for some time, is now under investigation by the SEC for some accounting irregularities there. What do you read into that?
CAMPOS: Well, that could be, obviously, very politically explosive. I mean, I'm sure the White House wants to do everything in its power to distance itself as much as possible from the entire set of accounting scandals that have erupted in the last few months… the fact that Halliburton is now being sucked into the investigation is a very bad thing, certainly from the White House's point of view, because the last thing that they want to have to do is explain whether, for instance, Dick Cheney's financial situation is in some way connected to potential accounting irregularities at his old firm.
SELLERS: Let's complete the circle back to Martha Stewart. If you were advising her, what should she do right now?
CAMPOS: Well, I think that, if I were advising her, I would advise her in the way that any criminal-defense attorney advises an especially high-profile client in this situation, which is to keep her mouth shut as much as possible.
SELLERS: But keeping her mouth shut — for somebody that's always out there — it's kind of difficult to do. She made a reputation talking, and now, when she suddenly stops talking, she can't encourage a good view of her, can she?
CAMPOS: Well, she has to make a decision. Does she want to do as much as she can to try to salvage her reputation and to sort of keep her status as a well-loved celebrity, or does she want to avoid going to jail? I think there's a tension between those two goals.
As a criminal-defense attorney, I, of course, would be focused on the latter goal of trying to keep her out of prison, and in that case, I would say you have to make some sacrifices. You're going to have to cancel TV appearances. You're going to have to get out of the limelight to a certain extent. You're going to have to, you know, act like a celebrity.
SELLERS: Yeah. that's exactly how she built up her brand. So thank you very much. We'll leave it there.
University of Colorado law professor, Paul Campos.
Thank you, sir.
CAMPOS: Thank you.
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