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US Business Tycoon Martha Stewart Indicted for Securities Fraud - 2003-06-04

Martha Stewart, who turned her sense of style into a multi-million-dollar home products and media conglomerate, was indicted Wednesday on federal charges of securities fraud and obstruction of justice. Ms. Stewart, a television and magazine celebrity, is being charged with using inside information in a controversial stock market trade.

Ms. Stewart appeared in a Manhattan courtroom to face nine criminal charges related to a December 2001 sale of 4,000 shares of biotech drug maker ImClone Systems, just one day before the U.S. Food and Drug Administration announced it would not review the company's application for approval of a promising cancer drug. In an ironic twist this week, doctors concluded that the drug Erbitux worked as well as an earlier, ImClone-sponsored study had shown.

Federal authorities believe the 61-year-old chief of the gracious living empire, Martha Stewart Omnimedia, sold her ImClone shares because she knew ahead of time of the FDA's decision because of her friendship with ImClone founder Samuel Waksal. Waksal has pleaded guilty to insider trading, which is making profit based on non-public information about a stock. He faces up to seven years in jail when he is sentenced this week.

U.S. Attorney James Comey says Ms. Stewart is being charged because she repeatedly lied to federal authorities about the circumstances surrounding the stock sale. The federal indictment challenges Ms. Stewart's claim that she had a pre-set arrangement with her broker for the automatic sale of the stock when it dropped to a certain price.

"This criminal case is about lying, lying to the FBI, lying to the SEC, and lying to investors," he said. "That is conduct that will not be tolerated by anyone. Martha Stewart is being prosecuted not because of who she is, but because of what she did."

Ms. Stewart's controversial stock trade was revealed during a period when major corporate scandals, including those involving Enron and WorldComm were being exposed, tossing her into a whirlwind of bad publicity that seriously hurt the value of shares in her own company. Business Week magazine reporter Gary Weiss is author of a newly-published account of organized crime's role in the explosion of financial markets in the late 1990s. He says Ms. Stewart's alleged crimes are hardly as far-reaching as others on Wall Street.

"Martha Stewart was in the wrong place at the wrong time," he said. "If you believe the accounts that have come out concerning Martha Stewart, she allegedly made some bad choices. There's some real question as to the seriousness of insider-trading allegations raised against her. She was a high-visibility target. Her misfortune was to have the name Martha Stewart be well-known. To be somewhat antagonistic towards law enforcement didn't help, and the result of this is that she is in very serious trouble."

The Federal Securities and Exchange Commission also filed civil charges against Ms. Stewart and her broker Peter Bacanovic. If she is found guilty, Ms. Stewart could face a prison term, and a demand that she be barred from serving as an officer of a public company.