NEW YORK — Federal prosecutors are seeking a criminal indictment against Martha Stewart "in the near future," her media company said today. If indicted in an insider-trader scandal, she will plead not guilty and go to trial, her lawyer said.
Stewart, whose name has become synonymous with tasteful living for legions of followers, has been under investigation for selling shares of biotechnology company ImClone Systems Inc. in December 2001 — just before disappointing news surfaced about a key ImClone-produced drug.
Stewart's attorneys have told the company that she is the target of a criminal investigation by the U.S. attorney in Manhattan, which "intends to request the grand jury to return an indictment against her in the near future."
Her lawyer, Robert Morvillo, issued a brief statement saying: "If Martha Stewart is indicted, she intends to declare her innocence and proceed to trial."
A statement issued earlier today by Martha Stewart Living Omnimedia Inc., did not elaborate on the possible criminal charges. Analysts have said charges could include insider trading or obstruction of justice.
A civil complaint by the Securities and Exchange Commission also is expected, according to the company's statement. The SEC had notified Stewart in October of its intent to file a civil complaint that could cost Stewart heavy fines and her job as CEO of her company. SEC spokesman John Nester declined comment on Tuesday.
Stewart, 61, has denied any wrongdoing in the ImClone sale.
Shares of Martha Stewart Living Omnimedia fell $1.97, or 17.6 percent, to $9.23 in late morning trading today on the New York Stock Exchange.
Even before trading opened today, company shares had plunged 52 percent since their peak of $23.15 in July 2001. They reached a low of $5.26 a share in early October shortly after Stewart resigned from the New York Stock Exchange's board of directors and after an assistant to her stockbroker agreed to help prosecutors investigating Stewart's sale of ImClone stock.
Marvin Smilon, a spokesman for Manhattan U.S. Attorney James Comey, declined to comment.
In its statement, Martha Stewart Living said its directors "have been planning for a number of possible contingencies, are evaluating the current situation and will take action as appropriate."
Stewart is the company's chairman and chief executive. Through television shows and public appearances, she is also the embodiment of its brand, with almost all products bearing her name.
In an apparent effort to a reduce that dependency, the company is testing a magazine, Everyday Food, that does not carry her name.
Stewart's name and image is tied to an empire of products from Martha Stewart Everyday merchandise, exclusive to Kmart, to magazines, books and TV shows.
Stewart told the New Yorker for an article published in January that she estimates she has lost $400 million due to the decline in value of her more than 30 million shares in her multimedia company, along with legal fees and lost business opportunities.
ImClone founder Samuel Waksal, a friend of Stewart, is to be sentenced next week after pleading guilty in the ImClone insider-trading scandal. He could be sentenced to six to seven years in prison, plus fines — although his defense team is seeking a lighter term.
Waksal has admitted he tipped off his daughter Aliza Waksal to sell ImClone stock before it plummeted on the bad news. But he has not implicated Stewart, and his plea was not part of an agreement to cooperate with prosecutors.
Stewart sold nearly 4,000 shares of ImClone on Dec. 27, 2001 — one day before the Food and Drug Administration announced it would not review ImClone's application for approval of Erbitux, which the company had touted as a promising cancer drug. ImClone's stock subsequently plunged.
Federal authorities want to know whether Stewart sold ImClone shares because she had insider knowledge of the impending FDA decision.
Stewart has denied any insider dealing. She has maintained that she had a standing order with her Merrill Lynch broker, Peter Bacanovic, to sell the shares if the stock fell below $60.
Just this week, a new study was released concluding that Erbitux was effective against cancer after all. ImClone stock rose sharply on the news.