PROSECUTING MARTHA STEWART: THE OVERVIEW; Martha Stewart Indicted by U.S. On Obstruction
By CONSTANCE L. HAYS
Published: June 05, 2003
Martha Stewart was indicted yesterday on charges of conspiracy, obstruction of justice and securities fraud, all linked to a personal stock trade she made in 2001.
She pleaded not guilty and pledged to fight the charges. Hours after her arraignment in federal district court in Manhattan, the media and merchandising company she founded, Martha Stewart Living Omnimedia, announced that she was stepping down as chairwoman and chief executive. She will continue as a director and is expected to remain a force as the company's ''chief creative officer.'' [Page ...view middle of the document...
''That was illegal insider trading,'' the regional director of the S.E.C., Wayne Carlin, said.
Mr. Bacanovic, no longer Ms. Stewart's broker, was also indicted yesterday on criminal charges, including perjury, and is named in the S.E.C. complaint as well. He pleaded not guilty to the criminal charges.
Ms. Stewart seemed composed as she entered a federal courtroom yesterday afternoon, flanked by lawyers and wearing a beige pantsuit. The judge, Miriam G. Cedarbaum, released both her and Mr. Bacanovic without bail, although Mr. Bacanovic was ordered to surrender his passport.
Mr. Bacanovic's lawyer, Richard M. Strassberg, said, ''We are confident he will be fully vindicated at trial.''
If convicted on all the charges, Ms. Stewart could face several years in prison and the possibility of a steep fine. A recent Justice Department directive discourages assigning white-collar offenders to house arrest.
After her arraignment, she did not speak to reporters and photographers massed outside the courthouse in the rain. But her lawyers issued a statement saying she was being made ''the subject of a criminal test case designed to further expand the already unrecognizable boundaries of the federal securities laws,'' and they predicted that she would be ''fully exonerated.''Ms. Stewart has vigorously defended her sale of ImClone stock as ''entirely lawful'' and promised to fight the charges. But she faces an uphill battle. In addition to the civil and criminal cases against her, several groups of investors in Martha Stewart Living Omnimedia are suing her over her conduct. Mr. Comey said he used ''my discretion'' in deciding not to bring insider trading charges against Ms. Stewart and her broker. He said case law would support such charges, but he called them ''unprecedented.''
The S.E.C. contended that Ms. Stewart should have known she was receiving illegal information when Mr. Faneuil told her the Waksals were selling their ImClone shares. It is seeking to have her barred from serving as a director of any public company, including her own, and to limit any executive role in a company.
''From our perspective, this case involved insider trading,'' said Barry Rashkover, the S.E.C.'s associate regional director. ''She is a tippee. We allege that she knew or recklessly disregarded that, and traded on that information.''
Ms. Stewart can be prosecuted for obstruction of justice even if the government does not accuse her of insider trading, said Michael Shepard, a partner in San Francisco at the law firm of Heller Ehrman White & McAuliffe. ''The question is whether you were messing with something that might be material in an investigation,'' he said.
The indictment, returned early yesterday by a Manhattan grand jury, describes a series of meetings between Ms. Stewart and investigators from the S.E.C., the Justice Department and the F.B.I. in February and April 2002. It lists various statements she made that prosecutors contend were false, and details...
