Martha Stewart Indicted on Nine Federal Charges

The media had a field day with the combination of celebrity and scandal: "Kitchen Goddess Martha Stewart Finds Herself in Hot Water." The high profile "Domestic Diva" was indicted on federal securities fraud and obstruction of justice charges in an insider stock trading fiasco that has now spanned 16 months. She faces up to 30 years in prison and $2 million in fines if convicted on all charges.

Stewart, 61, pled not guilty to nine charges in the same day as she resigned as CEO and chairman of Martha Stewart Living Omnimedia, the company she founded and has used to bring style and organization to home and garden.

"I am stepping aside as chairman and CEO because it is the right thing to do," she said in a statement.

The 41-page indictment went beyond expected insider trading charges and included the obstruction of justice charges, accusing Stewart of lying to federal investigators and others during the long investigation leading to yesterday’s charges.

"This criminal case is about lying — lying to the FBI, lying to the SEC and investors," said U.S. Attorney James Comey during a Wednesday afternoon press conference in New York. "That is conduct that will not be tolerated. Miss Stewart is being prosecuted not because of who she is, but what she did."

Also charged was Stewart’s stockbroker, Peter Bacanovic, who was fired from Merrill Lynch after the scandal broke. He was charged with perjury and obstruction of justice.

Stewart’s troubles began when she unloaded a $250,000 worth of ImClone Systems Inc. stock on Dec. 27, 2001, the day before the Food and Drug Administration (FDA) announced it would not approve an ImClone cancer-fighting drug. The FDA’s action sent ImClone stock plunging. Former ImClone CEO Sam Waksal, a close friend of Stewart’s, has already pled guilty to six counts of insider trading, admitting he had told family and friends — but not Stewart — to dump their stock in anticipation of the FDA’s announcement. He is scheduled to be sentenced next week in Manhattan. He has not implicated Stewart and his plea agreement does not include a deal to cooperate with prosecutors handling her case.

The Securities and Exchange Commission also filed a civil suit on Wednesday, requesting Stewart and Bacanovic be ordered to pay back the $45,000 she would have lost had she not unloaded her ImClone stock when she did. However, more significantly, the SEC suit seeks to prohibit Stewart from ever again serving as the head of a publicly held company.

Stewart, who will remain a board member within her company, has ceded the top spots to Jeffrey Ubben, who now heads a private investment firm and is the second largest shareholder—after Stewart—will serve as chairman, and company President Sharon Patrick will become CEO.

Stewart’s attorney Robert Morvillo had harsh words for federal prosecutors on Wednesday. "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?"

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