NEW YORK (Reuters) - Martha Stewart (news - web sites), a former model and stock broker who built a media business, on Wednesday was charged with obstructing a government probe into her suspiciously timed sale of shares of ImClone Systems Inc., a biotech company run by a friend.
In a nine-count indictment, the government charged that Stewart and her former stock broker, Peter Bacanovic, interfered with the investigation into the timing of her ImClone stock sale. She sold nearly 4,000 shares the day before ImClone delivered bad news that caused its stock to plummet.
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.
"This criminal case is about lying, lying to the FBI (news - web sites), lying to the SEC and lying to investors. That is conduct that will not be tolerated by anyone," U.S. Attorney James Comey said at a news conference.
"Martha Stewart is being prosecuted not because of who she is, but what she did," he added.
Stewart was also charged with securities fraud and making false statements.
Separately, the U.S. Securities and Exchange Commission (news - web sites) filed a civil suit on Wednesday, charging Stewart with insider trading. The SEC suit also charged both Stewart and Bacanovic with making false statements.
The SEC alleged Stewart "committed illegal insider trading ... after receiving an unlawful tip from Bacanovic."
Stewart, through her attorneys Robert Morvillo and John Tigue, said she was innocent of any wrongdoing.
"Martha Stewart has done nothing wrong," a statement from the lawyers 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."
Bacanovic was also charged with perjury for allegedly lying to SEC investigators. Bacanovic was also the broker for Sam Waksal, a close friend of Stewart's and at the time chief executive of ImClone, which was trying to bring an experimental cancer drug to market.
The charges, which could carry penalties of up to 10 years in jail, marked a stunning blow to Stewart, who built a catering business into a media and design company spanning magazines, television and merchandise, and became a household name while courting a celebrity lifestyle.
Stewart, 61, wearing a tan rain coat and under cover of a matching umbrella, arrived at the court house shortly before noon, sweeping through a crowd of reporters, photographers and television crews that had gathered in the rain in anticipation of her arrival.
The latest developments in the 16-month long ordeal came after settlement talks failed to produce a plea agreement acceptable to her and prosecutors at the U.S. Department of Justice (news - web sites), reports said.
In afternoon trading on Wednesday, shares of her company, Martha Stewart Living Omnimedia Inc., were up almost 6 percent, after falling by 15 percent on Tuesday.
Following the indictment, Stewart is expected to step down as chairman and chief executive of her company.
Securities fraud carries a penalty of up to 10 years in prison, and obstruction of justice carries a penalty up to five years in prison and up to a $250,000 fine.
The SEC, in its civil suit, seeks to bar Stewart from being a company director and limit her activity as an officer of a public company.
Stewart has repeatedly said her sale of 3,928 ImClone shares was triggered by a standing order to sell if the stock fell below $60. She sold the stock for $58 per share on Dec. 27, 2001. The next day, ImClone reported that federal health regulators had rejected its drug application, triggering a sell-off in the stock.
Waksal was removed as head of ImClone a year ago and last fall was indicted on insider trading charges for trying to sell his own stock days before the drug's rejection was reported. He pleaded guilty to six of the 13 counts and will be sentenced next week.
In March, Waksal also reached a partial settlement to resolve civil charges by the SEC. He agreed to never again be an officer of a public company and to pay more than $800,000.
In a nine-count indictment, the government charged that Stewart and her former stock broker, Peter Bacanovic, interfered with the investigation into the timing of her ImClone stock sale. She sold nearly 4,000 shares the day before ImClone delivered bad news that caused its stock to plummet.
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.
"This criminal case is about lying, lying to the FBI (news - web sites), lying to the SEC and lying to investors. That is conduct that will not be tolerated by anyone," U.S. Attorney James Comey said at a news conference.
"Martha Stewart is being prosecuted not because of who she is, but what she did," he added.
Stewart was also charged with securities fraud and making false statements.
Separately, the U.S. Securities and Exchange Commission (news - web sites) filed a civil suit on Wednesday, charging Stewart with insider trading. The SEC suit also charged both Stewart and Bacanovic with making false statements.
The SEC alleged Stewart "committed illegal insider trading ... after receiving an unlawful tip from Bacanovic."
Stewart, through her attorneys Robert Morvillo and John Tigue, said she was innocent of any wrongdoing.
"Martha Stewart has done nothing wrong," a statement from the lawyers 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."
Bacanovic was also charged with perjury for allegedly lying to SEC investigators. Bacanovic was also the broker for Sam Waksal, a close friend of Stewart's and at the time chief executive of ImClone, which was trying to bring an experimental cancer drug to market.
The charges, which could carry penalties of up to 10 years in jail, marked a stunning blow to Stewart, who built a catering business into a media and design company spanning magazines, television and merchandise, and became a household name while courting a celebrity lifestyle.
Stewart, 61, wearing a tan rain coat and under cover of a matching umbrella, arrived at the court house shortly before noon, sweeping through a crowd of reporters, photographers and television crews that had gathered in the rain in anticipation of her arrival.
The latest developments in the 16-month long ordeal came after settlement talks failed to produce a plea agreement acceptable to her and prosecutors at the U.S. Department of Justice (news - web sites), reports said.
In afternoon trading on Wednesday, shares of her company, Martha Stewart Living Omnimedia Inc., were up almost 6 percent, after falling by 15 percent on Tuesday.
Following the indictment, Stewart is expected to step down as chairman and chief executive of her company.
Securities fraud carries a penalty of up to 10 years in prison, and obstruction of justice carries a penalty up to five years in prison and up to a $250,000 fine.
The SEC, in its civil suit, seeks to bar Stewart from being a company director and limit her activity as an officer of a public company.
Stewart has repeatedly said her sale of 3,928 ImClone shares was triggered by a standing order to sell if the stock fell below $60. She sold the stock for $58 per share on Dec. 27, 2001. The next day, ImClone reported that federal health regulators had rejected its drug application, triggering a sell-off in the stock.
Waksal was removed as head of ImClone a year ago and last fall was indicted on insider trading charges for trying to sell his own stock days before the drug's rejection was reported. He pleaded guilty to six of the 13 counts and will be sentenced next week.
In March, Waksal also reached a partial settlement to resolve civil charges by the SEC. He agreed to never again be an officer of a public company and to pay more than $800,000.
