I Beg Your Pardon, Martha Stewart

Last week, President Donald Trump intimated that he may pardon Martha Stewart who was famously convicted and served time in prison for obstruction of justice.  Ms. Stewart's notorious conviction arose out of an insider trading investigation of her sale of 3,928 shares of ImClone Systems Incorporated stock in 2001.  Although she was also charged with lying about the reason for selling, she was acquitted of that count.  United States v. Stewart, 305 F. Supp. 2d 368 (S.D.N.Y. 2004).  See Joan Macleod Heminway, Martha Stewart Saved! Insider Violations of Rule lOb-5 for Misrepresented or Undisclosed Personal Facts65 Md. L. Rev. 380 (2006).

Often overlooked is the fact that the Securities and Exchange Commission also charged Ms. Stewart with securities fraud.  She settled the SEC's charges by by consenting to a final judgment imposing a permanent injunction prohibiting her from violating the antifraud provisions of the federal securities laws.  She also agreed to disgorge the amount of loss avoided ($45,673) and pay a civil penalty ($137,019).  An interesting question will be what effect, if any, a presidential pardon would have on the SEC's settlement with Ms. Stewart. 

Article II, Section 2 of the Constitution vests in the president the power to pardon "offences [sic] against the United States, except in Cases of Impeachment".  The question then becomes whether the SEC's enforcement action involved an "offense" against the United States within the meaning the Constitution.  One might argue that there was no pardonable "offense" because the SEC's enforcement action was purely civil.  The counter argument would be that the SEC's action was not a private civil action, but a case brought by the government in court to enforce federal law and obtain penalties authorized by Congress.

If the judgment against Ms. Stewart did involve an "offense", another question is how broadly or narrowly the clemency warrant is drawn.  As noted above, Ms. Stewart's criminal conviction was not for securities fraud.  If the pardon is limited to only the criminal conviction, then the SEC's judgment would be arguably unaffected.  On the other hand, the clemency warrant might include a pardon for "offenses" charged or chargeable in connection with the criminal conviction.