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Running head: [INSERT TITLE HERE]
[INSERT TITLE HERE]
Student Name
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Author Note
This paper was prepared for [INSERT COURSE NAME],
[INSERT COURSE ASSIGNMENT] taught by [INSERT
INSTRUCTOR’S NAME].
PART I
Directions
: Please review the questions below and, write a 3-4 page essay
analyzing each legal issue presented in this week’s modules
readings.
Please apply APA format with in text citing, reference list, and
double-space.
Limit your word count to 2,000 words.
Please visit the Academic Resource Center for help with APA
format.
If applicable, include arguments from each side.
If a criminal case exists, you would present arguments from the
prosecutor and the defense attorney.
If it is a civil case, then you would argue as a plaintiff and

defense lawyer.
Be sure that your answers respond to the questions.
Do not restate the problem in your answer. Mention the facts
where relevant to your analysis. If you are asked for a
recommendation, be sure to include one, but do not fail to
consider counterarguments.
If your answer depends upon essential information not set forth
in the question, state what that information is and how it affects
your answer.
If facts are missing in your argument, please state what facts
would be pertinent to each party’s case; also list any facts or
information that could potentially damage a party’s case.
Read the questions carefully and attempt to answer each
directly.
Clear, well-organized, and concise writing will be rewarded.
If there are ambiguities in the questions, discuss the ambiguity
and how it impacts your answer.
You may consult your text, lecture notes, or outlines that you
have personally prepared.
Submit your responses to the following:
1.
The Georgetown Journal of Legal Ethics published a law review
article in the Summer of 2007 entitled “Martha Stewart’s

Insider Trading Case:
A Practical Application of Rule 2.1”.
Find this article using LIRN.
What is insider trading?
What were the facts leading up to Martha Stewart being
questioned by the SEC?
What is the SEC?
Why was Martha Stewart accused of insider trading?
Was Martha Stewart convicted of insider trading?
Why did Martha Stewart receive jail time?
In the author’s opinion, where did her attorney go wrong?
Do you agree with the author’s assessment?
2.
RICO is Racketeer Influenced and Corrupt Organization Act.
What is it and what criminal entity was it created to target?
3.
What effect did the Supreme Court decision in

New York Times Co. v Sullivan
have on the laws of defamation as they existed in the various
states?
4.
Torts are wrongful act causing injury to another person or
damage to another’s property.
Name a tort and describe what its elements are and provide an
example.
5.
Negligence is a breach of a legal duty to act carefully, resulting
in injury to another or damage to another’s property.
This lawsuit is normal in a car accident.
If individuals have an accident, what would the plaintiff need to
prove if he or she sues under negligence?
6.
Summary judgment is a motion for immediate judgment filed by
either plaintiff or defendant based on the information in the
complaint and the answer.
How does this affect the outcome of a trial or case?

7.
How can a police officer determine whether a driver is "under
the influence"?
8.
Compare the burden of proof required in a civil case mentioned
in Chapter 5 with the burden of proof required in a criminal
case as mentioned in Chapter 3. Why do you think a higher
burden of proof is required in a criminal case?
PART II
Module 2 Journal Assignment
Directions
:
Write 2-3 paragraphs reflecting on the following statements:
Procedures for handling criminal matters are often thought to be
cumbersome and heavily weighted in favor of the accused. It is
important to emphasize that our country was founded with the
idea that a person is absolutely considered innocent until proven
guilty, and that it is up to the government to prove that guilt. To
accomplish this, everything possible must be done to protect the
rights of the accused, even though some guilty parties may go

free as a result.
Please apply APA format with in text citing, reference list, and
double-space.
Limit your word count to 400 words.
Please visit the Academic Resource Center for help with APA
format.
Martha Stewart's Insider Trading Case: A Practical Application

of Rule
2.1
Hoffman, Drew
The Georgetown Journal of Legal Ethics; Summer 2007; 20, 3;
ABI/INFORM Complete pg. 707
Martha Stewart's Insider Trading Case: A Practical Application
of Rule 2.1
DREW
HOFFMAN*
INTRODUCTION
"Arrogance." That seems to be the public perception of why
Martha Stewart received significant criminal penalties and
suffered major setbacks in her business ventures for her role in
the ImClone Systems, Incorporated ("ImClone") insider trading
scandal. However, public perception is often misguided, if not
completely wrong, and thus, further research is required to
determine where the blame should be placed. After examining
the factual circumstances surrounding the insider trading
scandal, it becomes clear that Stewart's arrogance did play a
considerable role in her convictions and setbacks. Nonetheless,
there is one individual who could have, and should have,
attempted to stop Stewart from lying about her actions:
Stewart's pretrial counsel John Savarese.
This note contains three sections. The first two sections provide
a background for Stewart's case. Part I lays out the facts of the
case, and Part II presents a synopsis of insider trading law in

order to lay the foundation for how Savarese should have
advised Stewart in light of the penalties she faced. Finally, Part
III focuses on a lawyer's role as an advisor as stated in Rule 2.1
of the Model Rules of Professional Conduct ("Model Rules"). In
Part III, Rule 2.1 is broken into two components in order to
identify the choices Savarese could have made based on his role
as a legal advisor and to demonstrate how Rule 2.1, if followed
closely, would have allowed Savarese to have been an effective
advisor.
I. WHAT HAPPENED . . .
In December 2001, Martha Stewart's friend Sam Waksal, CEO
of a biotech company called ImClone, learned that the FDA was
going to reject ImClone's application for approval of its cancer
drug, Erbitux. 1 Waksal attempted to call his stock broker, Peter
Bacanovic at Merrill Lynch, but Bacanovic was on vacation.2
However, Waksal did speak with Doug Faneuil, Bacanovic's
assistant, and
told
* J.D./M.B.A., Georgetown University (expected May
2008).
1.
See Press Release, U.S. Securities and Exchange Commission,
SEC Charges Martha Stewart with Illegal Insider Trading (June
4, 2003), available at www.sec.gov/news/press/2003-69.htm.
2.
See Patricia Hurtado, Broker's Assistant Fined $2,000 for Pan in
Stewan Scandal, KNIGHT RIDDER TRIB.

Bus. NEWS, Jul. 24, 2004, at 1.
707
708
THE GEORGETOWN
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OF
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ETHICS
[Vol. 20:707
him to sell Waksal's stock in ImClone.3 Following this
exchange, Faneuil called Bacanovic and explained the
situation.4 Bacanovic, who also served as Stewart's broker, told
Faneuil to call Stewart and give her the story.5
Faneuil spoke with Stewart telling her that he thought ImClone's
share price was going to drop because Waksal was trying to
cash out.6 Upon learning this, Stewart decided to sell all 3,928
of her shares in ImClone, giving this order on December 27,
2001.7 The sale occurred one day prior to the announcement
concerning Erbitux's rejection.8
Stewart avoided losses of $45,673 by selling her 3,928 shares of
ImClone.9 At the time, Martha Stewart claimed that she was
worth $750 million, and thus, this loss would have been
equivalent to approximately .006% of her total net worth,
beyond miniscule from a business perspective. 10 Therefore, her

business risk in not performing this trade was next to nothing.
Not only were Stewart's fines about four times greater than what
she saved by selling when she did but her many business
ventures incurred significant losses. 11 Had Stewart stopped to
do a risk-reward analysis, she probably would have realized that
the sale was a bad move, particularly with the shadow of
pervasive corporate corruption that the Enron fraud had cast
upon the business community at that time. 12
Following
the trade, both
Merrill
Lynch
and the SEC began
investigating
3.
See id.
4.
See id.
5.
See www.sec.gov/news/press/2003-69.htm. Stewart continues to
deny the allegations, but these are the allegations brought forth
by the Securities Exchange Commission ("SEC") and she was
found guilty based upon the facts given by the SEC.
Furthermore, a number of witnesses testified that this was the

way things transpired. See Keith Naughton and Barney Gimbel,
Martha's Fall, NEWSWEEK, March 15, 2004, at 28. Doug
Faneuil, Stewart's assistant Ann Armstrong, and Stewart's friend
Marianna Pasternak all confirmed the allegations which Stewart
denied.
6.
See id., at 28.
7.
See id.
8.
See Deboralt Lohse, Scandal Snares Martha Stewart, KN!GJIT
RIDDER Tum. Bus. NEWS, June 5, 2003, at l.
9.
This is how much she would have saved had she waited to sell
the shares until the next trading day, December 31, 2001, when
the news concerning Erbitux's rejection was released.
10.
See Interview by Barbara Walters with Martha Stewart, 20/20
(Nov. 7, 2003). Stewart claimed that the
$45,673 was .006% of her total net worth.
11.
See Wlkipedia
http://en.wikipedia.org/wiki/Martha_Stewart_Insider_Trading_C

harges. She was ordered to pay a $30,000 fine in the criminal
trial and a $195,000 fine from the civil trial, equaling $225,000,
which is
4.93 times $45,673. See also, Brooks Barnes, Moving the
Market: Martha Stewart Settles With SEC on Civil Charges,
THE WALL ST. J. JoURNAL, Aug. 8, 2006, at C3. Her
business setbacks included a ban from serving on the Board or
as a Director of any publicly traded company for five years, a
ban from serving as CEO or chairwoman of her own company,
Martha Stewart Omnimedia, until 2011, having her show
dropped from UPN and CBS, and having her magazine shelved
indefinitely.
12.
See Keith Naughton & Barney Gimbel, Martha's Fall,
NEWSWEEK, March 15, 2004, at 28. The authors claim that
Martha's trial "became a symbol of an era when it seemed that
everyone was getting rich, but it was really only the well
connected." Id. Furthermore, the article points out that one
member of her jury, juror Hartridge, cast Martha as "the poster
CEO for all the corporate scandals and hoped her conviction is
an overdue victory for the little guy. Investors may feel a little
more comfortable now that they can invest in the market and not
worry about these scams and that they'll lose their 40l(k)," said
Hartridge.
2007]
INSIDER TRADING ADVISING
709
Stewart's trade, leading to the questioning of Bacanovic and
Faneuil. 13 Itis at this critical juncture where Savarese should

have stepped in and explained the possible implications of lying
about this trade. Savarese accompanied Stewart to her first
interview with the SEC, but nonetheless, Stewart, in
conjunction with Bacanovic
and Faneuil, fabricated
a story to explain the remarkably
coincidental
sale of stock.14
Faneuil, at Bacanovic's suggestion, told the investigators that
Stewart sold her stock in order to offset other tax gains.15 Both
Bacanovic and Stewart claimed that they were in agreement to
sell ImClone if it fell below $60.16 Further, Stewart's assistant
witnessed Stewart erase Bacanovic's message concerning
ImClone's impending downward turn though Stewart later told
investigators that she did not know if there ever was a message.
17 Following the erasing of the message, Bacanovic produced a
worksheet with an "@ $60" entry that referred to the alleged
agreement
between
Stewart and Bacanovic
to sell ImClone
if
it
fell

below $60.18 It is worth noting that the only entry on the
worksheet that was in different ink was the "@
$60"
entry.19
There were a number of charges brought against Stewart, who
continues to claim that she did nothing wrong.20 These charges
included,
inter
alia, conspiracy to obstruct the SEC's investigation, making
false statements, and perjury. 21 The insider trading charges for
the actual trade, however, were stayed until the completion of
Stewart's criminal trial regarding lying about the trade.22
Eventually the insider trading charges were settled. Under the
terms of the settlement, Stewart agreed to pay $195,081 and did
not have to admit or deny any wrongdoing. 23 Thus, the most
significant penalties Stewart received, such as jail time, arose
from the cover-up. The likelihood of charges being brought,
while
not
13.
See Press Release, SEC Charges Martha Stewart with Illegal
Insider Trading (June 4, 2003), available at
www.sec.gov/news/press/2003-69.htrn.

14.
See id.
15.
See Patricia Hurtado, supra note 2, at l.
16.
See Jake Ulick, Martha Revelations-a Year Later,
CNN/Money.com, May 19, 2003, http://
money.cnn.com/2003/05/16/news/companies/martha_yearlater/.
17.
See Mark Hamblett, Prosecution Sees Stewart's Lawyer as
Potential Witness, N.Y. L. J., Feb. 11, 2004,
available at www.law.com/jsp/article.jsp?id= 1076428295505.
18.
See Matthew Rose and Kara Scannell, Executives on Trial:
Stewart's Case Goes to the Jury; Panel Deliberates for Four
Hours and Asks to See Key Testimony; Panel Will Return This
Morning, THE WALL ST. J., Mar. 4, 2004, at Cl.
19.
See Friend: Martha Aware of Waksal's Sale, CNN/Money.com,
May 26, 2006, http://money.cnn.com/
2004/02/19/news/companies/martha/index.htrn.
20.

See Martha Stewart to Contest SEC Insider Trading Charges,
USA TODAY, May 26, 2006, available at
www.usatoday.com/money/media/2006-05-26-stewart-
sec_x.htm.
21.
United States v. Stewart, 433 F.3d 273, 279 (2d. Cir. 2006); see
Friend: Martha Aware of Waksal's Sale,
CNN/Money.com, May 26, 2006,
http://money.cnn.com/2004/02/l
9/news/companies/martha/index.htrn.
22.
See Martha Stewart to Contest SEC Insider Trading Charges,
USA Today, May, 26, 2006, available at
www.usatoday.com/money/media/2006-05-26-stewart-
sec_x.htrn.
23.
See Litigation Release No. 19794, U.S. Securities and Exchange
Commission, SEC v. Martha Stewart and Peter Bacanovic,
Compl. 03 CV 4070 (Aug. 7, 2006), available at
www.sec.gov/litigation/litreleases/2006/
710
THE GEORGETOWN JOURNAL OF LEGAL ETinCS
[Vol. 20:707

an absolute certainty, should have been recognized as probable
by Savarese. If the potential charges and the severity of the
liability that Stewart potentially faced were brought to Stewart's
attention, she may have refrained from lying. However,
pursuant to the Model Rules, if Stewart did not listen to
Savarese's advice, he could have and should have withdrawn
from the case, an issue that will be discussed in Part III.24
II.
INSIDER 'TRADING
In order to evaluate the decision Stewart faced, it is appropriate
to examine the likelihood of conviction on the insider trading
charges and the potential punishment that would accompany
such a conviction.
Insider trading refers to the buying or selling of securities by a
person who has obtained nonpublic information that is likely to
be important to a reasonable investor and who employs that
nonpublic information in breach of an obligation of confidence
or trust.25 The term used to describe the "importance to a
reasonable investor" is "material."26
This explanation of insider trading can be applied to Stewart's
sale of her ImClone shares. First, Stewart sold securities, a
factual issue that is not in question.27 Second, she obtained
nonpublic information. The public was not aware that lmClone's
CEO was selling his shares of lmClone because of the
impending drop of lmClone's share price and, as a result, this
was nonpublic. Third, the information was material. Everyone
who had an interest in ImClone knew that the FDA was soon to
make a decision on Erbitux. In that context, a reasonable
investor would want to know that the CEO was selling stock.
Fourth, Stewart may have breached a duty of obligation or trust,

though this element is not altogether clear. Stewart was not an
officer, a director, or a majority shareholder of lmClone;
accordingly, she owed the shareholders no fiduciary duty.28
Therefore, there seems to be no breach of confidence or trust.
As a result, this does not seem to be an inside trade.
lr19794.htm; see also Landon Thomas, Jr., Martha Stewart
Settles Civil Insider-Trading Case, N.Y. TIMEs,Aug. 7, 2006 at
Cl.
24.
See MODEL RULES OF PROFESSIONAL CONDUCT R.
l.16(b)(2) (2004) [hereinafter MODEL RULES]; see also
Comments on a draft by John Harrison, Esq., Professor of Legal
Aspects of Business Decisions Georgetown McDonough School
of Business, in Washington, D.C. (Oct. 27, 2006) on file with
author.. "Ina criminal case in particular, ifa lawyer cannot gain
control of his client, then he or she should withdraw from the
case. You cannot represent a client effectively if you do not
have their complete confidence and that includes the idea that
your advice must be followed." [hereinafter Harrison
Comments]
25.
See U.S. Securities and Exchange Commission,
www.sec.gov/answers/insider.htm.
26.
See id.
27.
See Dictionary.com

http://dictionary.reference.com/browse/securities. Stocks are
defined as securities.
28.
Cf. Singer v. Magnavox Co., 380 A.2d 969, 976-77 (Del. 1977).
Singer indicated that majority shareholders, directors, and
officers owe shareholders a fiduciary duty. Stewart held none of
these positions in ImClone.
2007]
711
However, there is a tipper/tippee section included in the insider
trading regulations which provides that an individual is liable
for securities fraud
if he/she receives a piece of information originating from an
insider and purchases or sells a security based upon this
information.29 In such circumstances, the receiver becomes a
tippee.30 Moreover, if the tippee passes this
insider information along, the new receiver also becomes a
tippee.31 Accordingly, in an extenuated manner, Stewart could
be considered an insider and
subject
to securities
fraud liability.
Nonetheless, this is an incredibly litigious issue and it certainly

is not cut-and-dry that the trade Stewart made constituted
insider trading. Therefore, there is no guarantee that if Stewart
had come clean and been honest about what transpired that she
would have been found guilty of insider trading. Savarese
should have advised her in a manner that made this clear. This
point will be dealt with in greater detail in Part
III.
It is important to further understand the possible legal
consequences Stewart faced from the insider trading charges in
order to effectively critique Savarese's role as an advisor. A
person is subject to Rule 1O(b)(5) of the Securities Exchange
Act when one intentionally performs an inside trade.32 The
maximum penalty for a violation of Rule10(b)(5) includes
imprisonment for up to 25 years and/or $5 million in fines.33
Stewart was a stockbroker for seven years in the 1960s and was
on the Board of Directors for New York Stock Exchange, 34
which suggests that she is a very savvy business person.
Accordingly, a court may have found that she acted
intentionally.35
It is incredibly unlikely, however, that she would have received
jail time and
29. See SEC v. Maio, 51 F.3d 623, 632 (S.D. Ind. 1995).
30.
See id.
31. See id.
32.
See Sec. Exchange Act 10(b)(5) (1934); In re Cady, Roberts &

Co., 40 S.E.C. 907, 910-911 (S.E.C. 1961). Intentionally means
that one is fully aware that they completed an inside trade, not
just intentionally completed a trade.
33.
See Sec. Exchange Act 10(b)(5) (1934).
34.
See,
e.g.
Biography
Resource
Center,
Martha
Stewart,
entry
updated
on
Sep.
29,
2005, http :1/0galenet.galegroup.
com.gull.georgetown.edu/servlet/BioRC?vrsn = 149&0P=

contains&locID = wash43584&srchtp=name&ca=3&c=
l&AI=U13004878&NA=Martha+Stewart&ste=
l2&tbst=prp&tab= l&n=
lO&docNum=Hl000121337&bConts=47; Wikipedia
http://en.wikipedia.org/wiki/Martha_Stewart_ Insider_Trading
Charges.
35.
Cf Harrison Comments, supra note 24. "Perhaps everyone
assumed that as a former stockbroker she
would be aware of this technique. Quite often when one is an
expert: lawyer, stockbroker, insurance executive, doctor, etc.,
there is the risk of being treated as an expert by other experts
and therefore as someone that does not need to have such simple
things explained to them. However, we all tend to manage our
personal affairs as personal, sometimes completely divorcing
them from our business acumen and knowledge. How often have
you used the techniques taught to you in business school to
analyze your own portfolio? Did this happen to Martha? Many
experts try to counter this all too common treatment by reading
now and then very basic books about their professions which
remind them about all of the stuff that they used to know very
well, but have somehow forgotten over the years, and by telling
all professionals to treat them just like they treat all of their
other clients. Both are good ideas."
712
THE GEORGETOWN JOURNAL OF LEGAL ETJilCS
[Vol. 20:707

millions in fines for completing a trade which was not clearly
an inside trade and that only netted her approximately $45,000.
It is more likely that the penalties described in Section 21(A) of
the Securities Exchange Act of 1934 would have been
imposed.36
This
section
provides
that
"The
amount
of
the
penalty
. . . shall be determined . . . in light of the facts and
circumstances, but shall not exceed three times the profit gained
or loss avoided."37 In order to determine the "facts and
circumstances" courts usually perform a six factor analysis
focusing on 1) the egregiousness of the violations; 2) whether
the violation was an isolated incident; 3) the degree of scienter
involved; 4) the defendant's economic stake in the violation; 5)
the defendant's role or position when engaged in the fraud; and

6) the likelihood that the misconduct will recur.38 In Stewart's
case, the violation
1) was not very egregious;39 2) was completely isolated; 3)
arguably
involved a low level of scienter because it was not clear
whether the trade she performed was an inside trade; 4)
involved a very low economic stake relative to her total net
worth; 5) did not involve a company in which she was an
officer, director, or majority shareholder; and 6) will arguably
not be repeated because the other five factors fall heavily in her
favor.40 This relevant information should have been disclosed
to Stewart by Savarese, so she could best weigh her options.
Given this information, it would have been evident that her best
option was, beyond any reasonable
doubt, to come clean and admit the
trade.
III.
ATTORNEY S AS ADVISORS: RULE 2.1 AND ITS
APPLICATION TO
STEWART'S CASE
There are two major components of Rule 2.1.41 The first is the
exercise of independent professional judgment and the candid
advice that should come from such judgment. 42 The second is
the lawyer's application of factors beyond purely legal ones as
they are relevant to the client's situation.43 The two
components will be addressed separately, using Stewart's story
as a case study for how Rule 2.1 should be utilized.

36.
See Sec. Exchange Act 21(a) (1934).
37.
Id.
38.
See SEC v. Youmans, 729 F.2d 413, 415 (6th Cir. 1984); SEC v.
Patel, Fed. Sec. L. Rep P 98,340, 4 (S.D.N.Y. 1993); SEC v.
Brethren, Fed. Sec. L. Rep. P 97210, 23 (S.D. Ohio 1992).
39.
See SEC v. Patel, Fed. Sec. L. Rep P98,340, 4 (S.D.N.Y. 1993)
(holding that $453,203 was not egregious as compared to
others); SEC v. Brethren, Fed. Sec. L.Rep. P 97210, 24 (S.D.
Ohio 1992) (holding that $569,819 was not egregious).
40.
The sixth factor seems to weigh the other five factors or take
into account the factors the court finds most relevant. See
generally SEC v. Patel, Fed. Sec. L. Rep P98,340, 4 (S.D.N.Y.
1993).
41.
See MODEL RULES R. 2.1 ("In representing a client, a lawyer
shall exercise independent professional judgment and render
candid advice. In rendering advice, a lawyer may refer not only
to law but to other considerations such as moral, economic,
social and political factors, that may be relevant to the client's
situation.").

42.
See id.
43.
See id.
2007]
INSIDER TRADING .ADVISING
713
Many professionals, in many different professions, take on the
role of advisor within their practice. In education, teachers
advise students concerning school matters as well as on
vocational matters; in medicine, doctors serve as advisors to
patients and their families concerning medical decisions; and in
the pastorate, ministers and the like counsel people regarding
their relationships with a higher power. In each of these
disciplines, the counseling mentioned concerns the
professional's
area of expertise.
The scope of these professionals' counseling duties does not
necessarily end there. For instance, a student may come to a
teacher for advice about how to deal with a tough family
situation. Similarly, when a doctor speaks with a family member
about their loved one's condition and options, she takes on a
role of confidante. She is someone who can be trusted and is
there to help the family understand the benefit of each option
not just regarding the health of the ill party but also concerning
the effect of a decision on the life of the family generally.

Pastors also find themselves advising members of their
congregation about more than their relationship with God.
Professionals in each
of
the
areas discussed must be capable of advising those whom they
come into contact with in their professional lives beyond the
basics of their
profession.
In this
regard, lawyers are no
different.44
Lawyers should be willing to advise their clients in a manner
that goes beyond purely technical legal advice.45 They should
also be capable of advising in this manner. In fact, Rule 2.1 of
the Model Rules speaks to this issue exactly. Rule 2.1 states
that "In rendering advice, a lawyer may refer not only to law
but to other considerations such as moral, economic, social and
political factors, that may be relevant
to the
client's situation."46
As Rule 2.1 indicates, a lawyer must be prepared to advise
his/her clients using aspects outside the realm of legal issues.47
Thus, it is imperative that lawyers see themselves as advisors in
a general sense. This is not to say, however, that

a lawyer should pretend to know everything.48 Rather, a lawyer
should call upon all of
his
relevant
knowledge
and
experience,
in the
law
and otherwise,
when
44.
See id.
45.
See MODEL RULES R. 2.1, cmt. 2 ("Advice couched in narrow
legal terms may be of little value to the client . . . Purely
technical legal advice, therefore, can sometimes be
inadequate.").
46.
MODEL RULES R. 2.1.

47.
See MODEL RULES R. 2.1 ("In rendering advice, a lawyer may
refer not only to law but to other considerations such as moral,
economic, social and political factors, that may be relevant to
the client's situation.").
48.
See American College of Trust and Estate Council (ACTEC),
ACTEC Commentaries on the Model Rules of Professional
Conduct, Commentary on MRPC 2.1,
www.actec.org/private/freefonn/page.asp?PageID=
504#Comm2. la. ("As advisor the lawyer may appropriately
counsel the client with respect to all aspects of the
representation, including nonlegal considerations. In doing so
the lawyer should recognize his or her own limitations and the
risks inherent in attempting to assist a client with respect to
matters beyond the lawyer's expertise.").
714
THE GEORGETOWN JOURNAL OF LEGAL ETHICS
[Vol. 20:707
advising a client concerning his or her case.49 Inthis mode, a
lawyer will be able to assist clients more meaningfully and,
most likely, lead the client to make the best choices regarding
their legal matter.
Along these same lines, a lawyer must realize that in order to
fulfill his duties as an advisor under Rule 2.1, he must give his
client both professional and commonsense advice.50 A client
may want an attorney to draft a contract for a business deal, but

at the same time may want the lawyer's own opinion as to
whether the deal is a good one or not. Thus, lawyers, in this day
and age, must be willing to give both kinds of advice to their
clients. Inorder to do so effectively, the lawyer will often have
to look beyond technical legal issues. Stewart's story
demonstrates this well.
Stewart's plan to deny all culpability was misguided for two
major reasons, both of which should have been brought to
Stewart's attention by Savarese. First, there were too many
people who knew about the cover-up. There was Stewart's
assistant who Stewart asked to erase the message concerning the
impending drop of Im.Clone's share price,51 Faneuil, and
Bacanovic himself. As Stewart's advisor, Savarese should have
helped her recognize a very common-sensical, yet vital, point:
the truth will come out.
The second major reason was the fact that corporate scandal was
an incredibly hot topic at that time. Enron was the biggest name
of a number of big corporations that created a gigantic cloud of
suspicion over any and all big businesses and business leaders,
and Stewart's alleged insider trade came to light at the peak of
the big business scandals.52 The public was inundated every
day with stories of the rich lying, cheating, and stealing to get
richer and the public was fed up.53 Seemingly every newscast
included video of CEOs, CFOs, and the like being handcuffed
and led to police cars, followed each time by some middle class
employee talking about how their life savings were lost when
Enron, for example, went bankrupt. As a result, there could not
have been a worse time for Stewart to become involved in a
scandal of her own. Of course, Stewart's insider
49.
See MODEL Rill.ES R. 2.1. ("In rendering advice, a lawyer may

50.
See id.
51.
See Mark Hamblett, Prosecution Sees Stewart's Lawyer as
Potential Witness, N.Y. L. J., February 11, 2004, available at
http://www.law.com/jsp/article.jsp?id= 1076428295505.
52.
It was announced that Stewart's sale would be investigated on
June 6, 2002. That same year Congressional hearings regarding
Enron began (January 24, 2002), Arthur Anderson was
convicted of obstruction of justice for its role in the Enron
scandal (June 15, 2002), and a number of Enron insiders were
indicted (Andrew Fastow, former CFO on November 1, 2002;
and John Forney, former energy trader, in December 2002). See
CBSNEWS.com , Risky Business,
http://www.cbsnews.com/htdocs/troubled_companies/
framesource_time.html.
53.
See generally Naughton & Gimbel, supra note 12, at 28..Juror
Hartridge cast Martha as "theposter CEO for all the corporate
scandals and hoped her conviction is an overdue victory for the
little guy. 'Investors may feel a little more comfortable now that
they can invest in the market and not worry about these scams
and that they'll lose their 401(k),' said Hartridge."

2007]
715
trading issues had nothing to do with her company, but she was
a well-known business mogul caught up in a financial scandal.
Thus, her public persona could take a mighty hit. She, as well as
Savarese, should have been even more wary of what the illegal
sale of the ImClone shares would do to her image because of the
corporate atmosphere.
Notice here that the second component of Rule 2.1 is
implicated.54 Savarese, in
discussing these issues with Stewart, should have been looking
to relevant issues beyond just the law involved. Their
discussion should have covered business aspects as well as
moral concerns, both of which were relevant to Stewart's case.
The Model Rules give further advice concerning the lawyer's
role as an advisor in Comment Two of Rule 2.1. The Comment
states that "Advice couched in narrow legal terms may be of
little value to the client. . . . Purely technical legal advice,
therefore, can sometimes be inadequate."55 Thus, the Model
Rules make it clear that legal advice is not the only concern of
the lawyer. Certainly, it is the number one priority, as one
comes to a lawyer for legal advice, but as Comment Two notes,
technical legal advice, on its own, can be inadequate.56 This
fits with the business and moral aspects that Savarese needed to
point out to Stewart.
Savarese's role as an advisor should not have ended with the

non-legal issues, however. He also should have explained the
legal implications involved with insider trading and the
consequences that could arise from being found guilty of lying
about the trade.57 He should have made it clear that denying
culpability was not really an option, and he should have done
this regardless what
Stewart's opinion
on the matter
was. This point
brings
us
to the first component
of
Rule
2.1.58
When a client comes to an attorney, the attorney must "abide by
a client's decisions concerning the objectives of representation .
. . ."59 Thus, the attorney must listen to and respect the client's
decisions concerning the characteristics of the representation.
As Rule 2.1 states, however, the lawyer must also exercise
independent judgment regarding the means to achieve the
client's objectives.60 The lawyer, while serving as an advisor,
must be candid about his thoughts regarding the client's
decisions concerning the representation. 61 Otherwise, the
lawyer will not serve the client properly. Similarly, a lawyer
must be able to

speak
54.
See MoDEL RULES R 2.1. ("In rendering advice, a lawyer may
55.
Id. cmt. 2.
56.
Id.
57.
Neither Stewart nor Savarese has discussed the specifics of their
meetings. Thus, he may have done this. Regardless this is what
he should have done.
58.
See MODEL RULES R. 2.1. ("In representing a client, a lawyer
shall exercise independent professional judgment and render
candid advice.").
59.

MODEL RULES R. 1.2.
60.
See MODEL RULES R. 2.1.
61.
See id..
716
THE GEORGETOWN JOURNAL OF LEGAL ETHICS
[Vol. 20:707
his mind, regardless of whether his opinion might upset his
client and thus cause harm to their personal or business
relationship. Application of these principles to Stewart's case
allows for a closer examination of Rule 2.1.
Martha Stewart is intelligent, strong-willed, unshakably
confident, and independent, and, as a result, saying no to her
regarding anything would probably be difficult. When she has
made a decision that will greatly affect her own life, however,
saying no regarding the decision would most likely be even
more difficult. Nonetheless, a lawyer, Savarese in this case,
needs to exercise independent judgment and give candid
advice.62 This is true regardless of whether the person qn the
other end is receptive or not.63 In fact, Rule l.16(b)(4) allows a
lawyer to withdraw when there is a fundamental disagreement
with the client.64 In this instance, there should have been a
fundamental disagreement between Savarese and Stewart once
Stewart decided to claim that she did nothing wrong.
As previously mentioned, Savarese needed to explain the legal

implications involved with insider trading and the consequences
that could arise from being found guilty of lying about the
trade. Had he done this, it would have been clear that Stewart
could have walked away with significantly less severe penalties
had she come forward with the truth. In fact, it is possible that
it would have been determined that she did not complete an
insider trade. As a result, if Stewart had come clean with
exactly what happened and argued that her role did not
constitute insider trading, she could have walked away scot-
free. It was imperative that Savarese make this clear to Stewart,
and if Stewart would not listen to reason, Savarese should have
withdrawn pursuant to Model Rule l.16(b)(4).65 To take this
one step further, had Savarese been aware that Stewart was
acting fraudulently, then he had even more reason to
withdraw.66 Either way, Savarese should have done one of two
things: 1) demonstrate to Stewart why her plan was so
incredibly misguided and compel her to change her plan or, if
this was not possible, 2) withdraw.
CONCLUSION
Model Rule 2.1, coupled with Stewart's story, demonstrates a
couple of very important lessons. First, it should be clear that a
lawyer must, at times, be able to
62.
See id..
63.
See id. ("[A] lawyer shall exercise independent professional
judgment and render candid advice."). Thus, the lawyer, even in
the face of a non-receptive client, must exercise their judgment
based not on what the client wants to hear, but rather on the
lawyer's independent professional judgment.

64.
See MODEL RULES R. l.16(b)(4) ("[A] lawyer . .. shall
withdraw from the representation
of a client if .. . [T]he client insists upon taking action that the
lawyer considers repugnant or with which the lawyer has a
fundamental disagreement.").
65.
See MODEL RULES R. l.16(b)(4).
66.
See MODEL RULES R. l.16(b)(2) ("[A] lawyer may withdraw .
. . if ...[T]he client persists in a course of action involving the
lawyer's services that the lawyer reasonably believes is criminal
or fraudulent.").
2007]
717
give his client something more than technical legal advice. This
means a lawyer must take an objective point of view weighing
the costs and benefits of a decision and give advice accordingly.
In many instances, a lawyer must call on such far-ranging
concepts as moral and economic consequences in order to weigh
the costs and benefits of a decision and, in tum, effectively
advise his client.
Second, it should be clear that a lawyer must give his client

independent and candid advice. This is so even if the client
takes issue with the advice. When a lawyer recognizes that the
client is taking a path with which the lawyer fundamentally
disagrees, it is imperative that the lawyer point this out. At
times, this may compel the client to fire the lawyer or might
compel the lawyer to withdraw if the client does not change
paths. Even in the face of these difficult situations, however, a
lawyer must stay the course.
Armed with the capability of calling on concepts outside the
legal realm and with the ability to give independent, candid
advice, a lawyer will be best suited to serve the interests of the
client.

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