Download Full Indictment and SEC Complaint .pdfs

MARTHA STEWART INDICTED; RESIGNS CEO-CHAIRMAN POSTS

Charged with Securities Fraud and Obstruction of Justice; Broker Indicted Too

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NEW YORK (AdAge.com) - Martha Stewart, chairman-CEO of Martha Stewart Living Omnimedia, was indicted today on criminal charges of securities fraud and the Securities and
Photo: AP
Martha Stewart leaving court after being indicted. Hours later, she resigned her posts as Omnimedia's CEO and chairman.
Criminal Complaint
Download the .pdf files:
> Stewart Indictment, Part 1
> Stewart Indictment, Part 2

SEC Civil Complaint:
> View The Case Synopsis
> Download the Complete SEC Complaint

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Exchange Commission also cited her in civil fraud charges.

At shortly after 3 p.m. in the U.S. District Court for the Southern District of New York in lower Manhattan, Ms. Stewart pleaded not guilty to the charges against her.

Steps down
Hours after the indictment and the plea, Ms. Stewart stepped down as chairman-CEO of Martha Stewart Living Omnimedia. Simultaneously, the company said Ms. Stewart's CEO duties would be taken over by president-COO Sharon Patrick. Jeffrey Ubben, an investment banker, was named the new chairman. A company statement said Ms. Stewart would continue to serve as founder and chief creative officer of Omnimedia's corporate board.

In a written statement distributed to the press, Ms. Stewart said she stepped down "because it is the right thing to do. This will enable the Company to continue to build the confidence and love of its readers, viewers, customers and strategic partners, without the distraction of my personal legal issues."

The dramatic move capped an extraordinary day for Ms. Stewart, in which she was finally indicted on charges of securities fraud and obstruction of justice, and ran a sizable gauntlet of press and photographers outside the Manhattan courtroom in which she pled not guilty. Following her plea, Ms. Stewart did not respond to a reporter's shouted inquiry asking if she'd resign to fight the charges.

Kmart
Kmart, the troubled discount retailer which maintains an extensive business relationship with Ms. Stewart's company, issued a press statement saying "This is a matter between law enforcement authorities and Martha Stewart as an individual and therefore, it would be inappropriate for Kmart to comment."

Criminal charges
The criminal indictment charges Ms. Stewart and her former broker, Peter Baconovic, engaged in a conspiracy to obstruct justice and made false statements to hide that Ms. Stewart's sale of ImClone Systems stock in late 2001 was based on inside information. The trade happened shortly before ImClone reported publicly some bad news from the Food and Drug Administration about one of its key new drugs.

The SEC civil charges accuse both Ms. Stewart and Mr. Baconovic of acting on insider information in making the trade and ask they be forced to give up their profits and be fined. The SEC also asks that Ms. "Stewart be barred from acting as a director of, and limiting her activities as an officer of" a public company.

Besides the posts she holds in her own company, Ms. Stewart is a director of Revlon.

Shareholders meeting
The annual shareholders meeting for Martha Stewart Living Omnimedia was held yesterday in Manhattan. Ms Stewart did not attend. Immediately following the meeting, Arthur Martinez, the former CEO of Sears who's on the board of MSLO, read a brief statement to the press in which he said reports that Ms. Stewart would step down were "categorically untrue." He was accompanied by Ms. Patrick, who remained silent during the brief sidewalk meeting with the press

Ms. Patrick's role
When Ms. Stewart actually did step down within 24 hours, it did not leave the company in entirely unfamiliar hands. Ms. Patrick negotiated the deal that brought Ms. Stewart's publishing enterprise out from Time Inc.'s control in 1997, and has been at her side ever since. She's also claimed credit for dreaming up the "omnimedia" approach the company's taken, which she'd said she conceived while working for management consultant McKinsey & Co., although Ms. Stewart, a former stockbroker and possessor of a formidable business mind in her own right, has bristled at the notion Ms. Patrick supplies the company's strategic smarts.

Ms. Patrick is also seems significantly less comfortable in the spotlight Ms. Stewart's accustomed to. It's telling that when the company wished to tell the press outside this week's sharehodler's meeting that Ms. Stewart had not resigned, Ms. Patrick did not deliver the statement, though she stood by Mr. Martinez's side as he did so.

Full corporate impact unknown
The full effect of Ms. Stewart's stepping-down remain unclear. Shortly before the company announced the news yesterday evening, though, a spokeswoman for Kmart Corp. said that marketing plans involving Ms. Stewart, who currently appears in a Kmart commercial, "remain unchanged."

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