03 June 2003
Scandal-plagued U.S. style mogul Martha Stewart may face criminal charges ranging from insider trading to obstruction of justice, officials at her company announced Tuesday, as shareholders gathered in New York for an annual meeting. If she is found guilty, Ms. Stewart, one of the world's wealthiest women, could face a jail term.
The scandal was started with Martha Stewart's sale of 4,000 shares of ImClone Systems in December of 2001. One day before the U.S. Food and Drug Administration announced it would not review ImClone's application for approval of a promising cancer drug called, "Erbitux". ImClone's stock price plunged on the news.
Since then, federal authorities have been trying to determine if Stewart sold the shares because she had prior, "insider" knowledge of the FDA decision due to her friendship with ImClone founder, Samuel Waksal. Mr. Waksal has already pleaded guilty to insider trading, and faces six to seven years in prison at his sentencing next week.
St. John's University Law Professor Anthony Sabino says Ms. Stewart's refusal to cooperate and reach a settlement with federal prosecutors early on in the investigation may cost her her freedom.
"The mere fact that the government is moving forward says that they have a powerful reason to go forward," he said. "At this point, frankly, the modern doyenne of fashion is running the risk of becoming the modern doyenne of prison garb if she's not careful. She's taken an enormous risk because she had many opportunities to resolve this by virtue of a civil fine or a lesser penalty with the government. She played hardball with them, and clearly the government's response is, "Well, Ms. Stewart, you played tough with us, now we're going to play hardball with you."
Ms. Stewart has denied any wrongdoing in the ImClone stock sell-off. She says her broker had been told in advance to sell the stock if it dropped to a pre-determined price. Her chief attorney, Robert Morvillo, says "If Martha Stewart is indicted, she intends to declare her innocence and proceed to trial." Law Professor Anthony Sabino says the government's "two-pronged attack", which includes both criminal indictments and a civil lawsuit aimed at her fortune, estimated at nearly $800 million, will almost certainly topple Ms. Stewart as head of her company, "Martha Stewart Living Omnimedia".
"This is going to be such a tremendous distraction to her, I'd be more than surprised if the stockholders in Martha Stewart Living Omnimedia do not demand that she resign her position," he said. "You can't defend yourself against one, let alone two, serious cases with the federal government and run a major multi-billion dollar enterprise at the same time. Something has to give."
The scandals have already battered Martha Stewart Living Omnimedia's earnings. Shares plummeted from just over $19 in June 2002, when the scandal broke, to a low of $5.26 in early October. Currently, shares hover just below the $10 mark.
Still, outside Martha Stewart Living Omnimedia's annual shareholders meeting, many remain supportive of the design and media icon. Fred Cavallaro says Ms. Stewart is being unjustly treated by the media.
"I think she's a good person. I think the way she does things is an inspiration to any lady," he said. "This is going to be a great lesson [for her], but I hope that she wins. I think it's really unfair to her."
Ironically, doctors concluded this week that Erbitux, the ImClone cancer drug at the root of the scandal, worked as well as an earlier, company-sponsored study had indicated. ImClone stock rose sharply on the news.