- The Washington Times - Thursday, June 5, 2003

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.

In another statement, Mrs. Stewart’s attorney, Robert Morvillo, said the home-decorating maven had done nothing wrong and asked why the government would file the charges after 1 years of investigation.

“Is it for publicity purposes because Martha Stewart is a celebrity?” he said. “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?”

Mrs. Stewart faces up to 30 years in prison and $2 million in fines if convicted on all counts, although the sentence would likely be much lighter under federal guidelines.

The criminal indictment says she unloaded shares of ImClone based on inside knowledge that the family of ImClone founder Samuel Waksal was planning to sell its shares ahead of the government news.

Mrs. Stewart went so far as to delete a computer log of a phone message in which Mr. Bacanovic told her he thought ImClone was “going to start trading downward,” according to the indictment.

The government also said Mr. Bacanovic altered his personal notes about her portfolio after he learned of the investigation, trying to create the impression he and Mrs. Stewart had a prior agreement to sell ImClone if it fell below $60 a share.

The charges spell not just serious legal headaches for Mrs. Stewart, but a crisis for her company, Martha Stewart Omnimedia, which has struggled with a publicity nightmare. Revenue in the first quarter of the year dropped 15 percent from the same period a year earlier.

The company’s president and chief operating officer, Sharon Patrick, will replace Mrs. Stewart as CEO. Besides her spot on the board, Mrs. Stewart plans to stay on as chief creative officer, the company statement said.

Mrs. Stewart told the New Yorker magazine in January she has lost about $400 million because of her company’s declining value, legal fees and lost business opportunities. And shares of Martha Stewart Living have fallen by nearly half from $20 in May 2001 to around $10. Shares closed up 48 cents at $10 yesterday on the New York Stock Exchange.

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