Obstruction of Justice—Federal Appeals Court Upholds Martha Stewart Conviction

The U.S. 2nd Circuit Court of Appeals has upheld the conviction of media mogul Martha Stewart on charges of obstruction of justice in connection with the federal investigation of her December 2001 sale of ImClone Systems Inc. stock.^[1] The court also upheld the conviction of her co‑defendant and former Merrill Lynch & Co. broker, Peter Bacanovic.^[2]

Today’s ruling means that the domestic diva will not be granted a new trial and will retain her status as convicted felon.

However, in what has turned out to be a wildly canny move on her part, Ms. Stewart opted to begin serving her sentence immediately after 2004 conviction, and while her appeal was still pending, in hopes of putting “this nightmare behind me.”^[3] After spending five months in prison and five months in home confinement at her estate in Bedford, New York, Stewart has completed the majority of her sentence.^[4] She has also returned to broadcasting, released two new television shows, and has published a new book called “The Martha Rules,” based on her experiences in the Alderson women’s federal detention facility.^[5]

The Conviction
In the government’s superseding indictment, Stewart was charged with the following federal crimes:

• Conspiracy to obstruct justice, make false statements, and commit perjury in violation of 18 U.S.C. § 371;
• Making false statements in violation of 18 U.S.C. § 1001(a)(1) and (2);
• Obstructing an agency in violation of 18 U.S.C. § 1505; and
• Securities fraud in violation of 15 U.S.C. §§ 78j(b), 78ff, and 17 C.F.R. § 240.10b‑5

In March 2004, Stewart was acquitted on the securities fraud charge and convicted on all of the other counts. She and Bacanovic, who was similarly convicted, were sentenced to 5 months in jail, 5 months home confinement, 2 years of supervised release, fines in the amounts of $30,000 and $4,000 respectively, and special assessments of $100 each per count.

The Appeal
Stewart's federal appeal cited several grounds for reversal including denial of the constitutional right to confront witnesses, misconduct by prosecutors and jurors, juror bias, and erroneous evidentiary rulings and jury instructions.

Some of the highlights of the 74‑page federal appellate decision include:

• Denial of the 6th Amendment challenge, which pertained to each defendant’s statements about each other made during interviews with federal investigators.^[6] Given “ample evidence” of a conspiracy, the court held that the statements of one were, by law, authorized statements of the other.^[7]
• Agreement with the District Court that the issue of alleged juror bias did not rise to the level of harm that would require a separate hearing, as the appellants had requested.
• Agreement with the District Court that expert testimony, offered on the uncharged issue of insider trading, was not improperly disallowed.

At the end of the day, the appeals court affirmed the judgment and remanded only the sentence of Mr. Bacanovic back to District Court for consideration of modification in accordance with Booker and Crosby.^[8]

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[1] Martha Stewart Conviction Upheld by Appeals Court, Bloomberg News [hereinafter Bloomberg], Jan. 6, 2006. See also U.S. v. Stewart, [hereinafter Stewart Appeal] No. 03CR717, (2nd Circ., Jan. 6, 2006).
[2] United States v. Stewart, 323 F. Supp. 2d 606 (S.D.N.Y. 2004) and Stewart Appeal supra note 1.
[3] Bloomberg supra note 1.
[4] Court Upholds Martha Stewart's Stock Trading Conviction, CBC News, Jan. 6, 2006.
[5] Everything Martha at marthastewart.com.
[6] Stewart Appeal at 23, supra note 1.
[7] Id. at 24-27.
[8] United States v. Booker, 543 U.S. 220 (2005) and United States v. Crosby, 397 F.3d 103 (2d Cir. 2005).