New York — Martha Stewart, the prim perfectionist who became a paragon of taste, style and "good things," pleaded not guilty after being indicted Wednesday in a stock trading scandal that threatens her media empire and could land her in prison.
Shortly afterward, she resigned as chief executive officer of the lifestyles company she created.
U.S. federal prosecutors in Manhattan accused Ms. Stewart of selling stock in December 2001 based on inside information, then covering her tracks and lying to investigators and shareholders.
Ms. Stewart pleaded not guilty to all charges in the case which involves just $45,000 (U.S.) — a pittance compared with other recent high-profile scandals over hundreds of millions of dollars at companies like Enron, WorldCom and Ahold.
Martha Stewart leaves federal court after pleading innocent to charges of securities fraud, conspiracy, and obstruction of justice (Chris Hondros/Getty Images)
Related Articles
Internet Links
Speaking deliberately and impassively, Ms. Stewart told a federal judge: "Not guilty."
Hours later, Martha Stewart Living Omnimedia Inc. said she will step down as chairman and chief executive officer, although she will remain a director.
She did not mention the indictment in a brief statement that announced her resignation.
"I love this company, its people, and everything it stands for, and I am stepping aside as chairman and CEO because it is the right thing to do," Ms. Stewart said.
The indictment resulted from an investigation into Ms. Stewart's decision to sell nearly 4,000 shares of drug maker ImClone Systems Inc. on Dec. 27, 2001 — the day before an unfavourable government ruling on ImClone sent its stock price tumbling.
Ms. Stewart has denied she was tipped off. But the 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 Ms. Stewart with securities fraud, conspiracy, obstruction of justice and making false statements — charges that could carry up to 30 years in prison and $2-million in fines.
Also Wednesday, the Securities and Exchange Commission filed a lawsuit levelling similar charges and sought to ban Ms. Stewart from ever leading a public company — including Martha Stewart Living Omnimedia.
A fascinated public has watched Ms. Stewart try to keep her profitable public persona intact, doling out advice on decorating or cuisine while news headlines have focused on her legal troubles and the criminal cases of friends.
Prosecutors and securities regulators also charged Peter Bacanovic, Ms. Stewart's stockbroker, who the government says gave insider information to Ms. Stewart through an assistant.
Mr. Bacanovic was charged with five counts, including perjury and obstruction of justice. Like Ms. Stewart, he pleaded not guilty.
The SEC suit asks the court to force Ms. Stewart and Mr. Bacanovic to pay about $45,000 — the amount the government claims Ms. Stewart saved by dumping ImClone stock before the bad news reached Wall Street.
Ms. Stewart's lawyer Robert Morvillo said she is being unfairly prosecuted, suggesting she is being persecuted because of her high profile or to offset the failure of authorities to prevent mammoth accounting scandals at Enron and WorldCom.
Mr. 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?"
U.S. Attorney James Comey said the case is about Ms. Stewart's lies — to the SEC, the FBI and her investors.
"Martha Stewart is being prosecuted not because of who she is but because of what she did," he said.
Ms. Stewart arrived at the Manhattan courthouse with her lawyers, wearing a khaki raincoat and shielding herself from light rain with an off-white umbrella. She swept past reporters without saying a word.
At a hearing before District Judge Miriam Goldman Cedarbaum, Ms. Stewart was released without bail until her next court appearance June 19. The judge ordered her to notify authorities if she plans to travel abroad.
Mr. Bacanovic was also set free without bail.
The criminal indictment says Ms. 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.
Ms. Stewart's sale of the stock came the day before the Food and Drug Administration 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 Ms. Stewart knew 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.
According to the government, Mr. Bacanovic's tip on the Waksals was relayed through Douglas Faneuil, a Merrill Lynch assistant who pleaded guilty last year to a misdemeanour charge of taking gifts to keep quiet about Ms. Stewart's stock sale.
The indictment says Ms. Stewart deleted a computer log of a phone message in which Mr. Bacanovic told her ImClone was "going to start trading downward."
The government also says Bacanovic altered his personal notes about Ms. Stewart's portfolio after he learned the government was investigating her.
The securities-fraud charge claims Ms. Stewart deliberately misled shareholders in Martha Stewart Living Omnimedia last summer, playing down the ImClone investigation in an attempt to keep her company's stock price from falling.
The scandals have affected earnings at the company. Revenue in the first quarter of this year dropped 15 per cent from a year earlier.
Ms. Stewart said in January she has lost about $400-million because of the company's declining value, legal fees and lost business opportunities. Shares of the company have fallen from $19 to just over $10 on Wednesday.
Ms. Stewart is a friend of ImClone founder Mr. Waksal, who is to be sentenced next week in Manhattan federal court after pleading guilty to six counts in the insider-trading scandal.
Mr. 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 Ms. Stewart.
Martha Stewart Living Omnimedia, with sales of $295-million last year and a staff of 580, includes operations in publishing, television, merchandising, Internet commerce and direct mail, among them Martha Stewart Living and Martha Stewart Weddings magazines and the Martha Stewart Everyday houseware line.
