TOPICS > Economy

Martha Stewart’s Resignation

June 5, 2003 at 12:00 AM EDT


JIM LEHRER: Finally tonight, the legal traumas of Martha Stewart. Ray Suarez has that.

MARTHA STEWART: Don’t forget that picking the perfect stamp can really…

RAY SUAREZ: The woman described on her Web site as “America’s most trusted guide to stylish living” responded today to what she called “baseless” criminal charges. Yesterday’s nine-count federal indictment includes charges of obstructing justice and making false statements. Prosecutors also indicted Peter Bacanovic, Stewart’s former stockbroker, on a multiple counts, including perjury.

JAMES COMEY, U.S. Attorney: It’s a tragedy that could have been prevented if these two people had done, only done what parents have taught their children for eons: Even if you are in a tight spot, lying is not the way out.

RAY SUAREZ: The case focuses on Stewart’s interaction with her friend Samuel Waksal, then CEO of the biotech firm Imclone. In late 2001, prosecutors say, as the FDA was prepared to reject the company’s cancer drug, Waksal planned to dump Imclone shares. Bacanovic, who was both Waksal and Stewart’s broker, told Stewart, according to the suit, and then she unloaded her own shares of Imclone. Stewart and Baconovic have pleaded not guilty.

MARTHA STEWART: Everyday towels are now in 51 colors.

RAY SUAREZ: RAY SUAREZ: Stewart’s lawyer said she’s a target because she’s a woman celebrity. That’s a matter of much debate.

SPOKESPERSON: People are anxious to tear her down because of the fact that she’s a woman and so successful.

SPOKESPERSON: Martha Stewart has never in portrayed herself as Little Miss Muffett. She’s always been a very sophisticated business person. She committed an illegal act.

RAY SUAREZ: Today, in a full-page ad in “USA Today,” the homemaking star told her “friends and loyal supporters” that “I am innocent – and I will fight to clear my name. I simply returned a call from my stockbroker.” A former broker herself, Stewart’s also charged with insider trading in a federal civil suit. Late yesterday, she stepped down as CEO of Martha Stewart Omnimedia, the nucleus of her designing, publishing and merchandising business. Her next court date is June 19.

For more about the Martha Stewart indictment, I am joined by Kara Scannell, reporter for the “Wall Street Journal.”

What does the government say that she did that formed this nine-count indictment?

KARA SCANNELL: Well, the government isn’t charging her for insider trading, which would be selling based on the knowledge that the Waksals were selling their shares. The government instead is charging her with what followed that, basically what they called the cover-up. Her conspiring with her broker to say that they had an agreement to sell her shares of Imclone when they hit $60. And that’s what her broker had told federal officials and also what Martha Stewart has told federal officials. The government says that isn’t the case. The $60 order was fabricated after the fact and that she really sold because she was told that the Waksals were selling.

RAY SUAREZ: So all these charges then stem from the investigation and not from what might be called the underlying crime?

KARA SCANNELL: Yes, that appears to be the case because the Securities and Exchange Commission filed a civil lawsuit against Martha Stewart relating to her sale of Imclone stock but the federal prosecutors haven’t charged her with that at all. Instead it’s what happened after that. The old saying the cover-up is worse than the crime.

RAY SUAREZ: Has the federal government even construed her public statements in her own defense as a kind of crime?

KARA SCANNELL: That’s actually part of the charges against her. The government said that the statements that she issued proclaiming her innocence that she did not trade on inside information constituted securities fraud against the shareholders of her own company, Martha Stewart Living Omni Media because the government alleges that she was artificially supporting that stock and her wealth, because she is the majority shareholder by what they say making false statements by saying that she did not trade on inside information.

RAY SUAREZ: And she’s also being sued by her own shareholders, isn’t she?

KARA SCANNELL: There is a class action suit against her which alleges much of the same thing, that her and it also alleges other executives had sold Martha Stewart Living stock before they publicly announced that she was being investigated. The company says that that’s not true and that it was planned selling that they do every quarter or every so often. But the shareholders’ suit alleges that they had sold because they anticipated a sharp sell off in Martha Stewart stock when the news came out that she was under investigation.

RAY SUAREZ: Are there fairly serious potential penalties here? And are there any comparable cases so we could see whether people have gotten some hard time out of this?

KARA SCANNELL: Well, what Martha Stewart is facing if she were to be convicted of the charges against her, they say ten years. Under federal sentencing guidelines, that would probably be much lower. And the guidelines came into effect in 1987 to kind of curb the penalties that people can face and also the monetary ones. I believe that she would face maybe about a million dollar penalty based on, if she were convicted of all the crimes.

RAY SUAREZ: She herself has been fighting this publicly for a while now. It’s been hanging over her head. Has it done much damage to the business in a measurable, tangible way?

KARA SCANNELL: Well, when the news first came out that she was under investigation, the stock basically cratered. It has recovered a great deal. On Tuesday when her company put out a press release that they expected a federal indictment to come imminently the stock fell another 15percent. It rebounded 5percent yesterday. It’s hard to really separate out the overall slowdown in advertising which her publishing business really depends on and just, you know, the downward economy on what impact that’s had on her retail sales to say definitively the monetary impact it’s had on her company. But a lot of Wall Street analysts say it has been an overhang since she is the creative force.

RAY SUAREZ: Now she has stepped aside as the CEO of her company. She didn’t have to do that, did she?

KARA SCANNELL: No, she didn’t. Generally companies would… they would, you know, a person would resign if they’ve been indicted but she had no requirement to do so. She had said that she was doing it for the benefit of the company and hoping it would take some of this overcast away from it. Unless she was convicted, that’s the only time that she would have to step down.

RAY SUAREZ: She remains a member of the board of directors?

KARA SCANNELL: Yes, she is a member of the board of directors and I think the title is creative director that they created just for her in this situation.

RAY SUAREZ: The timing is interesting. Aren’t there new Martha Stewart product lines heading to stores even as we speak, so they’ll be unveiling Martha Stewart furniture and various house wares lines even as she’s fighting to stay out of jail?

KARA SCANNELL: I know there is a white sale going on right now that I’ve seen on TV. I’m not sure about the other products, but I believe the company is still continuing to operate as it has planned. They haven’t said any public reasons why they would curtail any of the plans that they had in place before the indictment.

RAY SUAREZ: Are these prosecutions normally fairly long affairs? Can we expect to have Martha Stewart in the business pages and perhaps even on the front pages of the news sections for months and months to come?

KARA SCANNELL: That’s generally the case. Both sides, the prosecutors and she, has a lot of time to prepare her defense. So in typical criminal prosecutions assuming she goes through trial and no agreement is reached in the meantime, it would be several months before there was a trial and possibly even a year.

RAY SUAREZ: Kara Scannell of the Wall Street Journal, thanks for being with us.

KARA SCANNELL: No problem.