Updated - 8:07pm
Martha indicted (CNN): NEW YORK (CNN/Money) - Martha Stewart was indicted Wednesday on charges of securities fraud and obstruction of justice arising from her controversial sale of ImClone Systems Inc. stock. A federal grand jury in New York handed up a nine-count indictment that included charges of securities fraud and obstruction of justice. Stewart's former broker, Peter Baconavic, was also indicted. Talks between Stewart and prosecutors broke down when she would not agree to plea to any charge that carried the potential for jail time, the Wall Street Journal reported Wednesday morning.
Well, that's hardly surprising. She's the CEO of a company bearing her own name; if she pled to a charge with jail time, she would almost certainly have had to step down immediately.
It will be interesting to see what happens. Frankly, I can't see how Martha Stewart Living Omnimedia can survive this. Especially if she's convicted, how does the company bearing her name survive without her? How can it have its figurehead in jail?
For what it's worth, she's not accused of insider trading; she stands accused of securities fraud and obstruction of various flavors. The principal issue seems to be that she's accused of making false statements of innocence in order to prop up the stock price of her company ... which is going to be impossible to prove, I should think. After all, assuming for the sake of argument that she was making false statements of innocence, how can you determine that it's for her company's benefit or for her own benefit, to persuade potential jurors that she was innocent and should not be charged or convicted?
Frankly, one suspects that the government is going after her like this purely as a matter of bad timing. Depending on who you're listening to or reading, she made a profit of $50,000-450,000 on her sale of Imclone, not a patch on her net worth. The scandal sent MSLO stock into a long tailspin, with something like 40-50% of its net worth lost. Martha herself has lost something like $450 million of her very own money. If her statement of innocence was meant to prop up her company stock, it would seem to have singularly failed. On the other hand, lurking out there are the ghosts of Enron and Global Crossing and the other business scandals of the past two years. Despite the fact that, by now, it seems to be pretty well known who did what, when, where, and why, not a second of jail time has been served by anyone. The only people who have really paid for their part in that mess were Arthur Andersen, which no longer exists as a functioning company.
As the poobahs have been pointing out all day long, the government failed in its attempt to convict Bill Clinton of obstruction, despite a much MUCH clearer case, despite clear prima facie evidence of obstruction. The standard for conviction was simply too high. If a federal obstruction case couldn't be made against Clinton, then how on earth can it succeed against Martha?
UPDATE: Martha Quits As Head of MSO (Newsday, June 4, 2003): Martha Stewart resigned Wednesday night as her company's chief executive and chairwoman of the board of directors, but said she would remain a director and continue to help develop her popular homemaking aids. "I love this company, its people, and everything it stands for and I am stepping aside … because it is the right thing to do," Stewart said in a prepared statement. "This will enable the company to continue ... without the distraction of my personal legal issues... I will continue to be instrumental in the company's creative efforts."
Not surprising; it's really all she could do to try to protect her company. And frankly, as much as they could use the freedom from distraction about her legal efforts, that's not really going to work. Mostly, what it means is that she's in a position to let them fend for themselves, and concentrate on her own defense.
Posted by iain at June 04, 2003 12:04 PMComments
