NEW YORK: Martha Stewart, who turned a small catering outfit into a multi-million dollar media and home decorating business empire, has been charged with lying to US federal authorities investigating her sale of stock in a biotech company run by a friend.
In a nine-count criminal indictment, the government charged that Stewart and her former stockbroker, Peter Bacanovic, had interfered with the investigation of the suspicious timing of her ImClone Systems Inc stock sale.
Within hours of pleading not guilty to the charges on Wednesday, Stewart resigned her positions as chairman and chief executive of Martha Stewart Living Omnimedia Inc. However, she will remain on the company’s board as chief creative officer. Board member Jeffrey Ubben was named chairman, and company president Sharon Patrick was named CEO.
Stewart and Bacanovic, who was a broker with Merrill Lynch & Co, conspired to “fabricate and attempt to deceive investigators with a fictitious explanation for her sale”, the 41-page indictment said. Stewart sold nearly 4,000 ImClone shares the day before the firm delivered bad news that caused its stock to plummet.
Stewart, a former stockbroker and model, was also charged with securities fraud and making false statements. She was released on her own recognizance after entering a not guilty plea on all counts at her arraignment here.
To the surprise of some legal experts, prosecutors did not bring criminal insider trading charges against Stewart even after more than a year of investigating her sale of ImClone shares.
Instead, prosecutors left those allegations to the Securities and Exchange Commission (SEC), which filed a civil suit charging that Stewart “committed illegal insider trading...after receiving an unlawful tip from Bacanovic.”
The SEC suit also charged both Stewart and Bacanovic with making false statements.
Bacanovic was additionally charged with perjury for allegedly lying to SEC investigators. He was also the broker for Sam Waksal, a friend of Stewart’s and at the time ImClone chief executive, which was trying to bring an experimental cancer drug to market.
Securities fraud carries a penalty of up to 10 years in prison, and obstruction of justice carries a penalty of up to five years jail and a fine of up to a US$250,000.
The SEC, in its civil suit, is seeking to bar Stewart from being a company director and to limit her activity as an officer of a public company. – Reuters