Tags: Stewart | Steps | Down | CEO

Stewart Steps Down As CEO

Thursday, 05 June 2003 12:00 AM

Stewart and her former broker, Peter Bacanovic, on Wednesday also were charged for alleged insider trading in a civil complaint by the Securities and Exchange Commission.

"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," Stewart said in a statement released by the company.

"This will enable the company to continue to build the confidence and love of its readers, viewers, customers and strategic partners, without the distraction of my personal legal issues."

Under the announced changes, Stewart will serve as chief creative officer and a member of Omnimedia's Board of Directors. Company President and Chief Operating Officer Sharon Patrick was appointed CEO; Jeffrey Ubben, one of the company's founders, was elected chairman of the board; and Arthur Martinez, a director, was named lead director.

Stewart has been under The U.S. attorney in Manhattan said Stewart was indicted mainly for "lying."

According to the U.S. attorney in Manhattan, Stewart was charged for mainly for lying about the conditions of the ImClone Systems stock sale in 2001.

"This criminal case is about lying," said James Comey Jr. "Lying to the FBI. Lying to the SEC. Lying to the investors."

He rejected criticism by Stewart's lawyers she was singled out for a "bizarre" prosecution because of her celebrity.

"Ms. Stewart is being prosecuted not because of who she is, but because of what she did," Comey said.

Stewart was charged with obstruction of justice, making false statements to U.S. officials and securities fraud -- the latter charge somewhat based on her public statements about the investigation, which prosecutors said was used to prop up the stock of her own company, Martha Stewart Living Omnimedia Inc.

Despite Stewart's indictment, shares of Martha Stewart Omnimedia gained 48 cents, or 5.04 percent, to close Wednesday at $10.00 on extremely heavy volume of 5.8 million shares traded on the New York Stock Exchange. On an average day, Martha Stewart Omnimedia trades around 337,772 shares.

Her attorneys, Robert G. Morvillo and John J. Tigue, issued a statement Wednesday saying she would be exonerated.

"Martha Stewart has done nothing wrong," the statement said. "The government is making her the subject of a criminal test case designed to further expand the already unrecognizable boundaries of the federal securities laws."

The statement said the indictment shows that the basis for the entire investigation was false: Stewart was not criminally indicted for insider trading, though the SEC complaint did allege such activity.

"It is most ironic that Ms. Stewart faces criminal charges for obstructing an investigation which established her innocence," the statement added in part. "This turn of events can only be characterized as bizarre and raises questions about the motivation for such peculiar charges."

Wednesday's indictment also targeted her former broker. Bacanovic, a former registered representative associated with Merrill Lynch, Pierce, Fenner, and Smith Inc., was charged with lying to the SEC, with lying under oath, and obstruction of justice, Comey said during the news conference in Manhattan.

Stewart's troubles began on Dec. 27, 2001, when she sold nearly 4,000 shares of ImClone Systems stock for just under $230,000 the day before the Food and Drug Administration rejected the company's application for a cancer drug.

The price of the stock plummeted with the FDA announcement.

Stewart has said publicly that she had standing orders to sell the stock when it dropped below $60 per share. She also said she was being targeted for an investigation because of her activities in the Democratic Party, while Republican contributors associated with a number of huge corporate scandals were not.

ImClone founder and former Stewart friend Samuel Waksal, who also sold stock before the FDA announcement, pleaded guilty last year to charges involving insider trading.

And an assistant Merrill Lynch broker, Douglas Faneuil, pleaded guilty to lying to investigators about the reasons behind Stewart's ImClone sale.

The congressmen who headed an investigation into ImClone Systems Inc. Wednesday praised the indictment of Martha Stewart.

"This action should send a sobering signal to everyone that insider trading is not a victimless crime -- no matter how significant the ill-gotten gains -- and any attempts to cover it up should be dealt with swiftly an forcefully."

The comment came from House Energy and Commerce Committee Chairman Billy Tauzin, R-La., and Oversight and Investigations Subcommittee Chairman James Greenwood, R-Pa.

"While we are making no assumptions as to her innocence or guilt, obstruction of justice -- whether it involves Congress or the Justice Department or both -- is a very serious charge which must be pursued vigorously and to the fullest extent of the law."

The Washington Post and other publications reported that Faneuil has told investigators that he told Stewart about sales of the stock by Waksal family members before she made her decision to sell the 4,000 shares.

On Thursday, U.S. Attorney Comey said Bacanovic kept his work sheet notes of consultation with Stewart on the ImClone stock, but only added the words "at 60" -- indicating a desire to sell at $60 a share -- later in a different pen with a different blue ink.

Stewart wasn't selling at a pre-arranged price, Comey said, but because "Sam Waksal was looking to drop his stock."

Bacanovic was also indicted for providing the SEC with "a bogus document," the work sheet on the consultation, Comey said.

The SEC civil complaint against Stewart and Bacanovic said the insider trading charges stemmed from Stewart's ImClone sale "after learning material, non-public information communicated from Bacanovic, who was Stewart's stockbroker at the time. Bacanovic's tip was that then-ImClone CEO Samuel Waksal and his daughter had instructed Merrill Lynch to sell all of their ImClone stock held at Merrill Lynch."

In its lawsuit, the SEC is asking for an order requiring that Stewart and Bacanovic, "jointly and severally, disgorge $45,673, representing the losses avoided by Stewart's sale of ImClone securities, and that they pay civil penalties and pre-judgment interest."

Stewart was worth hundreds of millions of dollars at the time she sold the ImClone stock, allegedly to avoid what turned out to be a $45,000 loss.

Conviction on any of the criminal counts could bring several years in prison and a heavy fine.

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Stewart and her former broker, Peter Bacanovic, on Wednesday also were charged for alleged insider trading in a civil complaint by the Securities and Exchange Commission. "I love this company, its people, and everything it stands for, and I am stepping aside as chairman...
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