Posted on 06/04/2003 2:55:39 PM PDT by El Conservador
NEW YORK - Martha Stewart (news - web sites), the prim perfectionist who became a cultural paragon of taste, style and "good things," was indicted Wednesday in a stock trading scandal that threatens her hold on her media empire and could land her in jail. She pleaded innocent to all charges.
Federal prosecutors in Manhattan accused Stewart of selling stock in December 2001 based on illegal privileged information — then covering her tracks and lying to investigators and shareholders.
Stone-faced and speaking deliberately, Stewart told a federal judge: "Not guilty."
The indictment resulted from an investigation into Stewart's decision to sell nearly 4,000 shares of biotech drug maker ImClone Systems Inc. on Dec. 27, 2001 — the day before an unfavorable government report on ImClone sent its stock price tumbling.
Stewart has denied she was tipped off. But the resulting scandal has hung over her media empire of self-branded home products, TV appearances and magazines on cooking and decorating.
The 41-page indictment charges Stewart with securities fraud, conspiracy, obstruction of justice and making false statements — charges that carry up to 30 years in prison and $2 million in fines.
The Securities and Exchange Commission (news - web sites) on Wednesday filed a lawsuit leveling similar charges and sought to ban Stewart from ever leading a public company — including her own media concern, Martha Stewart Living Omnimedia.
The charges spell not just serious legal headaches for Stewart, but a crisis for her company, which has struggled with a publicity nightmare since she first became embroiled in the stock scandal a year ago.
A fascinated public has watched Stewart try to keep her highly profitable public persona intact, doling out advice on decorating or preparing a tasty dinner on television, while news headlines have focused on the criminal cases of close friends or her legal troubles.
Prosecutors and securities regulators also charged Peter Bacanovic, Stewart's stockbroker, who the government says fed insider information to Stewart through an assistant.
Bacanovic was charged with five counts, including perjury and obstruction of justice in the criminal indictment. The charges against him carry up to 25 years in prison and up to $1.25 million in fines. He also pleaded innocent to all charges.
Under federal guidelines, Stewart and Bacanovic both would likely face far less than the maximum prison sentences if they were convicted on all counts.
The SEC suit asks the court to force Stewart and Bacanovic to pay more than $45,000 — the amount the government claims Stewart saved by dumping ImClone stock before the bad news reached Wall Street.
Her attorney Robert Morvillo said Stewart was being unfairly prosecuted — because of her extraordinarily high profile, perhaps, or to divert attention from its failure to quickly prosecute white-collar executives from Enron and WorldCom, which were engulfed by mammoth accounting scandals.
Or, Morvillo asked: "Is it because she is a woman who has successfully competed in a man's business world by virtue of her talent, hard work and demanding standards?"
At a news conference, Manhattan U.S. Attorney James Comey told reporters the case was about Stewart's lies — to the SEC, the FBI (news - web sites) and to her own investors.
"Martha Stewart is being prosecuted not because of who she is but because of what she did," he said.
Stewart arrived at the Manhattan courthouse with her lawyers at midday, stepping out of a car and shielding herself from light rain with an off-white umbrella. She swept past reporters without saying a word.
At a hearing before U.S. District Judge Miriam Goldman Cedarbaum, Stewart was released without bail until her next court appearance June 19. The judge ordered her to notify authorities three days ahead if she plans to travel abroad.
Bacanovic was set free without bail until his next court date.
The criminal indictment says Stewart unloaded her shares of ImClone based on illegal inside knowledge that the family of ImClone founder Samuel Waksal was planning to sell its shares ahead of the government news.
Stewart's sale of the stock came one day before the Food and Drug Administration (news - web sites) announced it would not review ImClone's application for approval of Erbitux, which the company had touted as a promising cancer drug. ImClone's stock subsequently plunged.
The indictment does not claim Stewart had specific knowledge of the FDA decision — only that the Waksals were planning to sell. She was not charged with insider trading, a more difficult charge to prove than fraud.
Still, according to the government, Bacanovic's tip on the Waksals was funneled through Douglas Faneuil, an assistant who pleaded guilty last year to a misdemeanor charge of taking gifts to keep quiet about Stewart's stock sale.
Stewart went so far as to delete a computer log of a phone message in which Bacanovic told her he thought ImClone was "going to start trading downward," according to the indictment.
The government also said Bacanovic altered his personal notes about Stewart's portfolio after he learned the government was investigating her, trying to create the impression he and Stewart had a prior agreement to sell ImClone if it fell below $60 a share.
The securities-fraud charge claims Stewart deliberately misled shareholders in her company, Martha Stewart Living Omnimedia, last summer, playing down the ImClone investigation in a clear attempt to keep her company's stock price from falling.
The scandals had affected earnings at the company, which have been slumping. Revenue in the first quarter of the year dropped 15 percent from the same period a year earlier.
Stewart told The New Yorker magazine in January she has lost about $400 million because of the company's declining value, legal fees and lost business opportunities. And shares of the company have fallen from $19 to just over $10 on Wednesday.
Stewart is a friend of ImClone founder Waksal, who is to be sentenced next week in Manhattan federal court after pleading guilty to six counts in the insider-trading scandal.
Waksal could get six to seven years in prison, plus fines. His defense team is seeking a lighter sentence, and prosecutors are seeking a heavier one — claiming Waksal cheated ImClone shareholders as far back as 1986.
Waksal has admitted he tipped off his daughter Aliza to sell ImClone stock before it plummeted on the bad news. But he has not implicated Stewart, and his plea was not part of an agreement to cooperate with prosecutors.
Martha Stewart Living Omnimedia reported sales of $295 million and a staff of 580 last year. It includes publishing, television, merchandising, Internet commerce and direct mail.
The company produces Martha Stewart Living and Martha Stewart Weddings magazines, a newspaper column, a television show and the popular Martha Stewart Everyday line of home products, like towels and sheets.
Oops, guess it already started.
Already heard it...just a little while ago on Fox News. LOL
All this brouhaha for a lousy $45K? It seems excessively harsh, but Marty brought it on herself with the coverup attempts, which the Feds really could not overlook. It's such a pity, as like her or not, you have to admit that she's done good business and made a huge success of herself.
As for Hitlery's smelly futures deal, you're absolutely correct....where was the press?
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