Martha Stewart's company reports criminal investigation, says indictment to be sought

Tuesday, June 3rd 2003, 12:00 am

By: News On 6

NEW YORK (AP) -- Federal prosecutors in Manhattan are seeking a criminal indictment against Martha Stewart "in the near future," her media company said Tuesday.

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."

The statement, issued Tuesday morning by Martha Stewart Living Omnimedia Inc., did not elaborate on the possible criminal charges. Analysts have said charges could range from insider trading to 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 the civil charges.

Stewart has denied any wrongdoing in the ImClone sale. Her personal attorney did not immediately return a call for comment Tuesday, and her public-relations firm said it did not have any immediate comment.

Marvin Smilon, a spokesman for Manhattan U.S. Attorney James Comey, declined to comment.

In its statement, Martha Stewart Living said its board of directors has been planning for a number of possible contingencies, is evaluating the current situation and will take action as appropriate.

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.

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