Playing Make-Believe With Martha Stewart

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You are about to peep into a place no journalist has ever seen, a meeting between a lawyer and client. Or at least, my version of one; specificially, the inside meeting between Martha Stewart's lawyer, Bob Morvillo, and Martha herself. Of course, this is a work of fiction, but truth is the denizen of novels.

Just last night the government got Merrill Lynch trading assistant Doug Faneuil on the record denying that Martha Stewart ever gave the firm a stop-loss order and that -- legally -- he told her to sell on instructions from her broker, Peter Bacanovic, because Sam Waksal and his family members were selling it. That means that now, Stewart finds herself in an unbelievable fix. She may have made up a story to the federal prosecutors when the truth would have left her scot-free.

The problem is, though, that the feds get really annoyed when they think someone made up a story or hid something -- just look at the way that the feds pursued Arthur Andersen for document destruction with more ruthlessness than they pursued the real bad guys at Enron!

This is one of those stories where the reality will all happen behind the scenes. But having seen these kinds of discussions in action, let me give you some insight into what Martha may be saying to her lawyer today in light of the Faneuil cooperation.

By the way, this is how these lawyer-client discussions actually go, and man, are they painful for all involved. They also are amazingly post-tense, meaning they occur after all of the facts have taken place. And there are, as the lawyers say, "lots of bad facts" running around here.

Bob: "Looking bad for Sam Waksal. Can he hurt us?"

Martha: "I don't know what you are talking about."

Bob: "Martha, as I have told you time and again, I am your lawyer, I am the one person you can trust, the only person you can tell the truth to. Everyone else in your life, including your public relations people, like Susan Magrino, can be subpoenaed and deposed -- forced to tell the truth about what you said to them."

Martha: "Those people are loyal and would never speak against me."

Bob: "That's not the point, Martha. You have to understand, these are serious matters."

Martha: "How serious can they be if their lawyers are wearing Jos. A. Bank suits and cotton-poly shirts?"

Bob: "The Justice Department lawyers don't work for money. That's why they are such difficult adversaries. They work because they believe."

Martha: "I have nothing to hide, there's nothing that can hurt me. I have said that over and over."

Bob: "This is not CBS and I am not a reporter. I need to know, did you discuss with Sam Waksal your decision to sell ImClone (IMCL - commentary - Cramer's Take)?"

Martha: "We talked every day. I don't know if we mentioned ImClone."

Bob: "That's not helpful."

Martha: "Look, I don't even know who you are. How can I trust you? You don't even work for me. Who do you work for? You have your own shop. I can't even own you."

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Bob: "That's not the issue. But you are saying that Sam Waksal never told you to sell ImClone before the bad news came out?"

Martha: "Actually, it's worse than that, Bob. He told his daughter, his father, his general counsel, even his miserable secretary to sell before I found out."

Bob: "OK, now what did you tell the federal prosecutors before I got involved?"

Martha: "The truth."

Bob: "No, what story did you tell them?"

Martha: "I told them stories that are consistent with what happened."

Bob: "And what happened."

Martha: "You know that after the Bristol-Myers (BMY - commentary - Cramer's Take) tender, I didn't want to lose a lot of money on ImClone if it went bad, and I had made up my mind to put a mental stop on that stock if it went below $60."

Bob: "Did you put in a stop-loss order?"

Martha: "I don't really know how those work."

Bob: "Weren't you a broker for years and years before you were the Diva of Domesticity?"

Martha: "Yes."

Bob: "Then the feds won't buy that you didn't know how these worked."

Martha: "But I told that dear broker of mine, Peter, to cover for me and create a paper trail about the stop-loss order."

Bob: "Wait a second, you made up a story to the feds and then tried to get the broker to go along with it?"

Martha: "Well, what would you have done -- said that my broker told me to sell it because he had a bunch of Waksals in there selling?"

Bob: "Yes. That would have been legal and you wouldn't be paying me $1,000 an hour for this conversation. Let's get back to what you told the feds. Did you use the term 'stop-loss' with them?"

Martha: "I might have."

Bob: "That could be construed as an obstruction of justice."

Martha: "Nah, Peter will just tell them the same thing and nobody is going to believe that assistant of his anyway. It is my word against his."

Bob: "But he doesn't want to go to jail, so he will say what the prosecutors want him to say, which brings me back to the question of whether there ever was a stop-loss order."

Martha: "Bob, of course there was, they just can't find it. It was a mental thing."

Bob: "So what do I tell the Justice Department if they indict you for obstruction of justice?"

Martha: "You tell them that I am in the kitchen. I am busy. I have a company to run and if they persist, I am going to go on Oprah and give an interview to People -- I am going to wreck their careers if they mess with me. You tell them that. You tell them this is Martha Stewart they are messing with, and there is going to be all hell to pay."

Bob: "OK, Martha, I'll do that. But, by the way, you are going to have to get a different lawyer because, you see, I have to practice in front of these guys long after you are gone, and I can't say those things."

Martha: "Are you working for them, or me?"

Bob: "Martha, if you don't tell me the truth, frankly, I'd rather work for them, because I am finished in this town."

Martha: "Bob, I have bad news for you. If you don't get me out of this, you are finished in this town anyway."

Bob: "Thanks Martha, I will take that under advisement as you look for a new attorney."

Brutal? No. Work of fiction? Absolutely. Based on fact? Who knows?

Realistic?

Definitely.

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James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS by clicking here. While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to [e-mail]. Click here to get Cramer's book, "Confessions of a Street Addict."