LYING TO THE FEDS
by Virginia Postrel • Jun 5, 2003 at 1:27 pm
Elaborating on my post below, reader James Ingram writes:
What is particularly pernicious is that the feds would have been very hard put to convict [Martha] Stewart of criminal securities fraud. Dumping your stock on another unsuspecting member of the public (remember, there was a buyer, even if he or she is anonymous) based on a tip may be a sleazy think to do, but that does not make it a crime. To be a crime the "tipper" (securities law slang for the person passing on the inside information) must have received the information under a fiduciary duty not to disclose it, must have passed it along in knowing violation of that fiduciary duty and the "tippee" must have known that the "tipper" was acting in violation of a fiduciary duty. This sort of knowledge and intent is very, very hard to prove, particularly in a case where the only written evidence (an e-mail) said something to the effect that "your broker thinks the stock is trending down and you should sell." Much easier to nail her for lying. Easier to nail you and me too.
The worst case of this in public memory was Henry Cisneros. In his background investigation he disclosed the whole sordid tale: the extramarital fling, the dumping of his wife and family, his moving in with his mistress, their breakup, the humiliating return to his long-suffering wife, the pay-off to the mistress. How humiliating it must have been to tell this story to two suits from the FBI. For some reason he just couldn't bear to tell them just how much he had paid his mistress. Perhaps that was just too embarrassing. Perhaps he was afraid to let his wife know how much of their family savings he had given to a woman she must have regarded as a home-wrecker and hated like poison. In any event, he lied. And they crucified the poor bastard for it.