Stewart indicted in stock scandal

NEW YORK — A grand jury indicted Martha Stewart yesterday on federal charges of securities fraud and obstruction of justice in an insider-trading scandal that could bring big fines or even a jail term for the homemaking guru known for her impeccable taste.

A 41-page indictment also charges Mrs. Stewart with conspiracy and making false statements to prosecutors and the FBI.

She pleaded not guilty to all charges yesterday before a federal judge.

Hours later, she stepped down as chief executive of her media empire. A statement from Martha Stewart Living Omnimedia Inc. said she would remain on the company’s board, but not as its chairman.

“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,” Mrs. Stewart said in a statement.

The indictment also charged Peter Bacanovic, Mrs. Stewart’s stockbroker, with perjury and obstruction of justice. He also pleaded not guilty to all charges.

U.S. District Judge Miriam Goldman Cedarbaum released both, without setting bail, until their next hearings. The judge ordered Mrs. Stewart to notify authorities three days ahead if she planned to leave the country.

Mrs. Stewart, 61, has denied any wrongdoing in her December 2001 sale of shares of the biotech drug maker ImClone Systems ahead of an unfavorable government ruling. She claimed to have had an arrangement with her broker for the automatic sale of the stock when it dropped to a certain price.

Manhattan U.S. Attorney James Comey said the case centered on Mrs. Stewart’s lies to the FBI, the Securities and Exchange Commission and investors.

“That is conduct that will not be tolerated,” Mr. Comey said at a news conference. “Martha Stewart is being prosecuted not because of who she is, but what she did.”

The scandal surrounds Mrs. Stewart’s sale of 4,000 shares of ImClone on Dec. 27, 2001 — the day before the government issued a disappointing report on ImClone, sending its stock price tumbling.

In a related action yesterday, the SEC filed a civil suit in Manhattan seeking to bar Mrs. Stewart from being in charge of any public company.

The SEC suit also asks the court to order Mrs. Stewart and Mr. Bacanovic to pay more than $45,000 total — losses the government says Mrs. Stewart avoided by selling ImClone in advance of the disappointing news.

Mrs. Stewart, wearing a pale khaki-colored trench coat and carrying an off-white umbrella, arrived at the federal courthouse in Manhattan just before noon, breezing past a crowd of reporters and camera crews without a word.

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