Martha Stewart, the American lifestyle guru, was charged with nine counts of insider trading yesterday, making her the highest-profile business figure to enter the crosshairs of the US criminal justice system following a series of corporate scandals.
Ms Stewart, a television personality and chief executive of Martha Stewart Living Omnimedia, was charged along with her broker, Peter Bacanovic. At issue was the sale of a relatively small amount of stock in ImClone, a biotech company run by her friend Samuel Waksal. Prosecutors believe that Mr Waksal illegally sold off his stock in the company and tipped Ms Stewart to do the same when he got wind of an impending US government report denying approval of ImClone's most promising product, a cancer therapy drug called Erbitux.
Ms Stewart sold 4000 ImClone shares for $58 (£35) each on 27 December 2001, the day before the government report was issued. ImClone's share price subsequently plummeted.
Ms Stewart, 61, had no comment as she brushed past a crowd of reporters on her way into the federal courthouse in Manhattan shortly before noon.
Speculation has been mounting that the indictments would force her to step down from the company she founded, and could even spell the end of her business empire.
Already, the financial damage caused by the publicity surrounding the insider trading case far dwarfs any savings she made by getting rid of her ImClone stock. The share price of Martha Stewart Living has dropped from a high of more than $20 to about $9.50, representing a plunge in Ms Stewart's personal fortune from over $1bn to about $300m.
ImClone was one of the smallest of the US companies that imploded in the first few months of 2002 following revelations of insider trading, irregular accounting practices and stock prices cynically overhyped by analysts profiting from their own assessments.
While the troubles at Enron, WorldCom, Tyco and Arthur Andersen commanded more column inches, none has yet resulted in a criminal indictment. ImClone, by contrast, gave prosecutors their best chance to catch people with their hands in the proverbial cookie jar. Mr Waksal has already pleaded guilty on six counts of insider trading and is due to be sentenced next week.
For the moment, Ms Stewart is defiant, insisting through her lawyers that she intends to plead not guilty. In her version of events, she had a prior agreement with Mr Bacanovic, who worked for Merrill Lynch, to sell her holding in ImClone if the price fell below $60. The stock did cross that threshold on the day she made her sale.
But an assistant to Mr Bacanovic, Douglas Faneuil, has told investigators that the story about the selling threshold was cooked up to protect Ms Stewart. Mr Faneuil alleged that he was given money, a plane ticket and the promise of a week's holiday in exchange for going along with the story.
Mr Faneuil and Mr Bacanovic were fired from Merrill Lynch in the wake of the scandal, and no written record of the selling arrangement Ms Stewart alluded to was found.
Mr Faneuil pleaded guilty last October to charges that he lied to investigators. Mr Bacanovic insists he did nothing wrong and intends to plead not guilty. News of the impending charges prompted executives at Martha Stewart Living Omnimedia to hold a meeting with shareholders and reporters on Tuesday to discuss the future of the company. Despite the upbeat rhetoric, the event was overshadowed by the absence of Ms Stewart, who appeared only in a two-minute video.
"She looked beleaguered and sad," one shareholder, Patricia Serafinn, said.Reuse content