Tags: Stewart | Target | Criminal | Investigation

Stewart Target of Criminal Investigation

Tuesday, 03 June 2003 12:00 AM

The U.S. Attorney's office announced before the market opened Tuesday it would seek a criminal indictment against Stewart, founder, chairwoman and chief executive of Martha Stewart Living Omnimedia.

If indicted, Stewart plans to plead not guilty and proceed to trial, according to her chief attorney, Robert Morvillo.

Martha Stewart shares lost $1.68 to close Tuesday $9.41 on heavy volume of more than 5 million shares traded on the New York Stock Exchange, well above the daily average of only 260,000 shares.

Stewart was a no-show at the company's annual meeting held in New York, but board member and former Sears Chief Executive Officer Arthur Martinez emerged from the meeting to deny a report that she had resigned her leadership of the company.

"Martha Stewart remains CEO of Martha Stewart Living Omnimedia," Martinez said.

CNBC, citing unidentified sources, had reported Stewart was expected to step down as chairwoman and chief executive, but she would remain on the board.

Shareholders leaving the meeting said Stewart, in a videotaped message, expressed regret for not attending the annual meeting.

The company said: "The United States Attorney's Office intends to request the grand jury to return an indictment against her in the near future. Additionally, Martha Stewart Living Omnimedia has been informed that a civil complaint by the Securities and Exchange Commission is also expected."

Anthony Sabino, associate professor business, Peter J. Tobin Business School, St. John's University, said, "The likelihood that the government will hand down both a criminal indictment and commence civil actions against Martha Stewart and her company should not come as a surprise.

"Stewart has been a subject of intense scrutiny since the ImClone situation arose. Although there have been recent complaints that the government was moving too slowly, this pending action indicates that the government was instead proceeding very carefully and it is quite likely they have a strong case against her, otherwise they will not be moving forward at this time," Sabino said.

"It should also be remembered that although Mrs. Stewart may be a media celebrity, everyone is equal in the eyes of the law," Sabino added.

Federal investigators have been weighing bringing criminal and civil securities-fraud charges against Stewart for her sale of nearly 4,000 shares of biotech company ImClone Systems Inc. stock on Dec. 27, 2001, just days before an application for review of ImClone's promising cancer drug Erbitux was rejected, which caused the stock to drop sharply in value.

Stewart has insisted that she had an arrangement with her stock broker to sell the shares when they reached a certain price. But, Stewart is a close friend of ImClone founder Samuel Waksal, who last year pleaded guilty to insider trading and other securities-fraud charges.

Stewart repeatedly has denied any wrongdoing.

Martha Stewart Living Omnimedia and its directors "have been planning for a number of possible contingencies, are evaluating the current situation and will take action as appropriate," the company said.

The government probe appears to be taking a toll. In late April the company posted a wider-than-expected first-quarter loss of $4.5 million, or 9 cents a share. Revenue fell 15 percent to $58 million amid a slump in advertising and circulation revenue at its flagship magazine, Martha Stewart Living.

"Our business results reflect considerable pressure associated with the continuing governmental investigations of my sale of non-company stock," Stewart said in April.

Sharon Patrick, president and chief operating officer, commented, "Our philosophy for managing through this sustained period of uncertainty has been to invest in preserving the growth potential of our core assets through strict adherence to quality standards, retention of our talented employees, and maintenance of production schedules."

Stewart holds about 61 percent of Martha Stewart Living Omnimedia outstanding shares.

Separately, The Wall Street Journal reported that securities regulators, signaling their intent to pursue stock-research conflict cases up Wall Street's chain of command, are seeking e-mail communications and other data from more than 50 research executives, investment bankers and chief executive officers.

The Journal reported that faced with political pressure to pursue regulatory charges against senior executives as well as the analysts and the firms themselves, regulators are seeking evidence that the supervisors, bankers and executives were aware that analysts' research reports on stocks could have been influenced by investment-banking considerations.

The requests were sent late last week to 12 securities firms by the NASD, the NYSE and the SEC, whose requests came in the form of subpoenas.

According to the paper, one official familiar with the scope of the request compared it to the "shock-and-awe" bombing campaign that the U.S. threatened to use at the start of its invasion of Iraq.

The information request is the most far-reaching yet by regulators and seeks data from nearly every major Wall Street CEO, including Citigroup Inc.'s Sanford Weill; Morgan Stanley CEO Philip Purcell; Lehman Brothers Holdings Inc. CEO Richard Fuld,; Goldman Sachs Group Inc. CEO Henry Paulson Jr.; and former CEOs Allen Wheat and David Komansky of Credit Suisse Group's Credit Suisse First Boston and of Merrill Lynch & Co., respectively, the Journal reported.

Regulators also have asked for information from heads of the research and investment-banking departments of nearly every major securities firm.

In addition to e-mail messages, regulators are looking for performance reviews and correspondence, in an effort to determine if managers were properly supervising their employees.

Copyright 2003 by United Press International.

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The U.S. Attorney's office announced before the market opened Tuesday it would seek a criminal indictment against Stewart, founder, chairwoman and chief executive of Martha Stewart Living Omnimedia. If indicted, Stewart plans to plead not guilty and proceed to trial,...
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Tuesday, 03 June 2003 12:00 AM
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