Martha Stewart Indicted

June 4, 2003
Posted at: 11:40 a.m. CDT

NEW YORK - Martha Stewart was indicted by a federal grand jury in New York on Wednesday, a day after her attorney said she plans to fight any charges in an insider trading scandal.

Stewart breezed past a crowd of reporters and camera crews to enter the courthouse in lower Manhattan, but neither Stewart nor her lawyers addressed reporters.

Stewart's company announced Tuesday that federal prosecutors were seeking to indict her for her sale of ImClone stock in 2001.

Stewart's chief attorney Robert Morvillo said Tuesday that if she is indicted, "she intends to declare her innocence and proceed to trial."

The home-decorating mogul who built her fortune as a symbol of impeccable taste is under investigation for selling 4,000 shares of biotechnology company ImClone Systems in December 2001 just before the government released a negative decision on an ImClone cancer drug.

Federal prosecutors in Manhattan and the Securities and Exchange Commission have been looking into whether Stewart had advance word of the news, which sent ImClone shares tumbling. She is friends with ImClone founder Samuel Waksal.

The scandal has dogged Stewart for more than year. Shares of her company, Martha Stewart Living Omnimedia, have fallen from $19 to just over $9.

On Tuesday, the company said Stewart's attorneys had told the company that federal prosecutors in New York intend to ask a grand jury for an indictment "in the near future."

Analysts have speculated Stewart could be charged with insider trading, securities fraud or obstruction of justice.

The company also said the SEC, which has already notified Stewart it intends to bring civil charges against her, will probably file its complaint soon.

Representatives of both U.S. Attorney James Comey and the SEC declined to comment.

Stewart, 61, has denied wrongdoing. She claimed to have had an arrangement with her broker to automatically sell the stock if it dropped below $60.

Martha Stewart Living Omnimedia stock took a beating on the news, dropping $1.68 — or 15 percent — to close at $9.52 on the New York Stock Exchang. The stock has traded as low as $5.26 in the past year.

The company includes magazines, a television show, newspaper columns, Internet marketing and the Martha Stewart Everyday line of home products. The company reported sales of $295 million last year.

ImClone founder Waksal will be sentenced next week after pleading guilty to six counts in the insider-trading scandal. He could get to six to seven years in prison, plus fines. Although he has not implicated Stewart, he has admitted he tipped off his daughter, Aliza, to sell her ImClone stock before it plummeted.

Stewart's sale of ImClone stock came one day before the Food and Drug Administration said it would not review ImClone's application for approval of Erbitux, which the company had touted as a promising cancer drug.

Just this week, a new study was released concluding that Erbitux was effective against cancer after all. ImClone stock rose sharply.

Stewart was notably absent Tuesday at a meeting of shareholders in her company. She appeared in a video message in which she apologized for not attending but did not address the investigation.

Many investors said they came to the meeting — which was closed to the media — looking for more to allay their anxiety and were also disappointed that Stewart was not there.

"I came all the way from Chicago. She could have been there," said shareholder Mary Alice Povolny. "Martha needs to talk to us. She needs to let us know what is going on."

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