Lawyer: Martha Will Plead Innocent if Indicted
By James T. Madore
June 4, 2003
Martha Stewart's company warned Tuesday that it expects a federal indictment against her "in the near future," and a downcast Stewart told shareholders in a taped message she is "grievously sorry" for the stock-trading controversy that has dogged her for nearly a year.
Stewart's attorneys were told by the U.S. attorney's office for the Southern District of New York, the company said, "that Ms. Stewart is a target of a criminal investigation and that [the prosecutor] intends to request the grand jury to return an indictment against her in the near future." The company also said it had been told by the U.S. Securities and Exchange Commission to "expect" a "civil complaint" involving insider trading charges.
With the insider trading case apparently nearing a climax, Stewart did not attend the annual meeting of her company, Martha Stewart Living Omnimedia Inc., for the first time since it went public in 1999.
Instead, a visibly upset Stewart told shareholders, "I am grievously sorry that an investigation that has now gone on for more than a year has brought us to this point. I'm deeply saddened not to be with you today in person but I didn't want to create a circus-like atmosphere."
But the legal turmoil was the topic of conversation among the 100 attending shareholders as they drank lemonade or rhubarb ice tea and ate shortbread cookies before the annual meeting in Manhattan.
Stewart, 61, showed a range of emotion in the taped message, from sadness to bewilderment to defiance. "I am confident Martha Stewart Living Omnimedia will continue to be successful in its mission," she said toward the end.
Stewart's reputation has been tarnished by allegations that she engaged in insider trading of her stock in drugmaker ImClone Systems Corp. She sold $228,000 of ImClone shares on Dec. 21, 2001, a day before the public announcement that the company's new cancer drug had been rejected by federal regulators. Six months later, Stewart's stock trading was discovered by a Congressional committee investigating ImClone and soon garnered worldwide attention and separate federal probes.
Several shareholders asked if Stewart plans to step down from her executive positions. But board director Arthur C. Martinez said, "With respect to the reported rumor of Martha's resignation that is categorically untrue. Martha Stewart continues as chairman and CEO of this company."
He also said the board had met 22 times last year -- more than double the number of sessions held in 2001 -- to discuss the ImClone scandal and to develop "contingency plans for the future" should Stewart have to leave her company. "Reassured [the contingency plans] have been carefully developed and thought through, and we are ready for implementation depending on the outcome."
Martinez and other company executives declined to reveal details of the plan.
Legal experts speculated on whether the announcement by Stewart's company was part of a last-ditch effort to secure a deal with federal authorities to avoid an embarrassing arrest and trial.
"We just don't know if this is still entirely adversarial or whether the parties have negotiated some sort of plea bargain," said John C. Coffee Jr., a Columbia University law professor who specializes in securities regulations. "It think it's a probability in this case that there will be an indictment and also an SEC complaint…what we don't know yet is whether the government is going to indict for insider trading or obstruction of justice," Coffee said.
Coffee said, "I'm not saying the government cannot win. I'm saying this isn't plain vanilla case of insider trading."
Spokesman for U.S. Attorney James Comey and the Federal Bureau of Investigation declined to comment. Still, law enforcement officials, speaking in the condition of anonymity, said they did not expect any action Tuesday.
Stewart's attorney, Robert Morvillo, said in a statement, "If Martha Stewart is indicted, she intends to declare her innocence and proceed to trial."
During the question-and-answer period, several investors voiced support for Stewart while an equal number criticized her for failing to meet with face-to-face.
"I would like to express my dismay that Martha Stewart couldn't face us," said Fran Carey of Baldwin, adding that she attended the three meetings of investors. " appearance would have gone a long way to re-enforcing my faith in Martha Stewart Living Omnimedia in the future. I'm sorry she chose to hide from us, of all people -- her supporters, her shareholders," Carey said.
During the 45-minute meeting, several shareholders also complained about the company's plummeting stock price because of the ImClone flap. Shares in Martha Stewart Living Omnimedia fell a further $1.68 Tuesday to close at $9.52 in trading on the New York Stock Exchange. The stock has lost nearly 50 percent of its value in the past year with a 52-week low of $5.26 per share in October 2002.
Company president Sharon Patrick said Stewart remains crucial to the success of the magazines, TV shows and merchandise she inspired for better homemaking. "We expect to see Martha for a very long time. There will be lots of Martha to be seen all over the place."
Staff Writers Patricia Hurtado, Randi F. Marshall and James Toedtman contributed to this article.
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