NACDL - Martha and Lynne: The Stewart sisters and the expansion of white collar criminal prosecution

Martha and Lynne: The Stewart sisters and the expansion of white collar criminal prosecution

Martha and Lynne: The Stewart sisters and the expansion of white collar criminal prosecution Lawrence Goldman

Access to The Champion archive is one of many exclusive member benefits. It’s normally restricted to just NACDL members. However, this content, and others like it, is available to everyone in order to educate the public on why criminal justice reform is a necessity.

Martha and Lynne Stewart are not really sisters, at least in a biological sense. Martha is the doyenne of style, a super-rich chic entrepreneurial blonde with homes in Manhattan, Westport and East Hampton. Lynne is the anti-Martha, a middle-class, dowdy, gray-haired radical criminal defense lawyer who lives in Brooklyn. But there are striking similarities between the two, aside from their common surname. Both are successful, prominent, driven women in their early 60s who have been indicted in the United States District Court for the Southern District of New York for making public statements that the government found offensive, but that had never previously been considered criminal.

Martha, under a much-publicized criminal and regulatory investigation for alleged insider trading, announced at a meeting of stockholders of the company that bears her name that she was innocent and, purportedly falsely, that the trade in issue was made by pre-arrangement with her stockbroker once the stock hit a certain price. For that, she has been charged with stock manipulation of her own company’s stock.

Lynne, representing an imprisoned sheikh who had been convicted in the 1993 World Trade Center bombing case, in arguable violation of a Bureau of Prisons gag order, announced at a press conference that her client had called for the end of a ceasefire between his Islamic fundamentalist group and the Egyptian government. For that, she has been charged with aiding a terrorist organization.

Perhaps in this era we should have expected (but certainly do not condone) the Bush/Ashcroft administration as part of its declared war against terrorism to stretch the criminal law to prosecute for terrorism a radical criminal defense lawyer for a statement that arguably espouses revolutionary action against a government, however repressive, with which the United States is friendly. Most of us would not have expected – at least until white collar crime recently became the crime du jour – such a stretch against a corporate executive (who, incidentally, ultimately was not charged with insider trading). The Martha Stewart case demonstrates that the federal government is treating a great many defendants — whether in terrorism or white collar cases — harshly. While such a prosecutorial policy may give the illusion of even-handedness, one wonders whether even random justice is preferable to uniform injustice.

I do not mean here to minimize the effect of white collar crime. Unlike narcotics cases, for instance, white collar crime generally (but not always) has victims. And, sentences in the white collar area probably have more general deterrent effect than in others. But I do find the recent emphasis on prosecuting white collar individuals and corporations for acts previously not considered criminal (or sometimes even wrong) and on substantially increasing white collar criminal penalties both unfair and unlikely to be effective.

Historically, the typical white collar offender was prosecuted for activity that was clearly unlawful — such as embezzling from a bank, selling stock of a non-existent entity, or bribing a public official. White collar prosecutions now often occur in situations much less black and white. While the offender’s conduct may be aggressive and to many of us immoral or amoral, it often is not clearly prohibited by statute, regulation or case law.

More and more, the central issue is not whether the acts were committed or whether the defendant committed them, but whether the defendant acted with criminal intent. Every white collar criminal defense lawyer knows that a substantial percentage of our clients who are accused, and often even convicted, did not believe that they were committing a crime or violating the law. Rather, their “crime” is often just bad judgment (what I sometimes call “criminally bad judgment”).

Our society has given corporate leaders mixed signals as to whether their conduct must conform to a moral code. Wall Street analysts applaud an executive who “downsizes” the workforce and puts thousands of employees on the street. The civil agencies responsible for policing the nation’s markets have been weak, understaffed and ineffective, and the federal government has abdicated much of its responsibility to industry self-regulation. Lawyers, accountants and others market tax shelters to the rich which have little purpose other than to deprive the government of income. This is called “tax avoidance” and has generally been considered legal, as opposed to “tax evasion,” which is criminal. (I have practiced criminal law for almost 37 years and still often have difficulty telling the difference.)

The laws defining white collar crime are particularly unclear. Corporate executives are under immense pressure to increase profits and share prices, yet told to be careful not to go beyond the limitations of the law. When a corporate executive exceeds those amorphous limits, the result may be draconian, a criminal prosecution and a substantial prison sentence. The usual vehicle of prosecution is a fraud statute. “Fraud” is a vague term, defined largely by the whim of the prosecutor and the tolerance of the judge.

The lack of precision in statutes and regulations, and the use of the fuzzy fraud statutes, give little notice to businesspeople that their conduct may be criminal. The result is often an unfairness, somewhat akin to that of subjecting defendants to ex post facto laws, in prosecuting people like the Stewarts for conduct that they did not know, and reasonably could not have known, would be deemed criminal. Moreover, there is little or no deterrent effect for the criminal law in this area since the actors are not aware that their conduct is punishable.

An orderly and logical system of government would initially set limits on economic behavior by establishing rules with civil sanctions for their violation. Then, once these rules were established, it could in the appropriate situation seek criminal sanctions if they were violated.

That is not what happens in many cases. Rather, the first government responses to perceived wrongdoing are harsher penalties and more criminal prosecutions.

Thus, we have a criminal justice system which because of its imprecision is both unfair to those it surprises by prosecution and ineffective for those whom it is designed to protect. Careful rulemaking and well-funded and strong regulatory agencies may be offensive to some, but they will provide a more effective and just way of reducing business crime.

Continue reading below