NEW YORK - Martha Stewart, the multimillionaire icon of tasteful living, was indicted Wednesday in an insider-trading scandal that has threatened her hold on her media empire. She pleaded innocent before a federal judge to all charges.
A 41-page indictment unsealed in Manhattan federal court charges Stewart with securities fraud, obstruction of justice, conspiracy and making false statements to prosecutors and the FBI. The indictment also charged Peter Bacanovic, Stewart's stockbroker, with perjury and obstruction of justice, among other charges. He also pleaded innocent to all charges.
U.S. District Judge Miriam Goldman Cedarbaum released both, without setting bail, until their next hearings. The judge ordered Stewart to notify authorities three days ahead if she planned to leave the country.
Stewart, 61, has denied wrongdoing in her December 2001 sale of shares of the biotech drug maker ImClone Systems Inc. ahead of an unfavorable government ruling. She claimed to have had an arrangement with her broker for the automatic sale of the stock when it dropped to a certain price.
Manhattan U.S. Attorney James Comey said the case centered on Stewart's lies to the FBI, the Securities and Exchange Commission and investors.
"That is conduct that will not be tolerated," Comey said at a news conference. "Miss Stewart is being prosecuted not because of who she is, but what she did."
The scandal surrounds Stewart's sale of 4,000 shares of ImClone on Dec. 27, 2001 - the day before the government issued a disappointing report on ImClone, sending its stock price tumbling.
In a related action Wednesday, the SEC filed a civil suit in Manhattan seeking to bar Stewart from being in charge of any public company.
The SEC suit also asks the court to order Stewart and Bacanovic to pay more than $45,000 total - the losses the government says Stewart avoided by selling ImClone in advance of the disappointing news.
Stewart, wearing a pale khaki-colored trenchcoat and carrying an off-white umbrella, had arrived at the federal courthouse in Manhattan just before noon, breezing past a crowd of reporters and camera crews without a word.
In a statement, Stewart attorney Robert Morvillo said the home-decorating maven had done nothing wrong and asked why the government would file the charges after a year and a half of investigation.
"Is it for publicity purposes because Martha Stewart is a celebrity?" he said. "Is it because she is a woman who has successfully competed in a man's business world by virtue of her talent, hard work and demanding standards?"
Stewart faces up to 30 years in prison and $2 million in fines if convicted on all counts, although the sentence would likely be much less under federal guidelines.
The criminal indictment says Stewart unloaded her shares of ImClone based on illegal inside knowledge that the family of ImClone founder Samuel Waksal was planning to sell its shares ahead of the government news.
Stewart went so far as to delete a computer log of a phone message in which Bacanovic told her he thought ImClone was "going to start trading downward," according to the indictment.
The government also said Bacanovic altered his personal notes about Stewart's portfolio after he learned the government was investigating her, trying to create the impression he and Stewart had a prior agreement to sell ImClone if it fell below $60 a share.
The charges spell not just serious legal headaches for Stewart, but a crisis for her company, Martha Stewart Omnimedia, which has struggled with a publicity nightmare since she first became embroiled in the stock scandal a year ago.
A fascinated public has watched Stewart try to keep her highly profitable public persona intact, doling out advice on decorating or preparing a tasty dinner on a television program, while news headlines have focused on the criminal cases of close friends or her legal troubles.
The scandals had affected earnings at the company, which have been slumping. Revenue in the first quarter of the year dropped 15 percent from the same period a year earlier.
Stewart told The New Yorker magazine in January she has lost about $400 million because of the company's declining value, legal fees and lost business opportunities. And shares of Martha Stewart Living have fallen from $19. It was trading up 58 cents at $10.10 Wednesday afternoon on the New York Stock Exchange.
Stewart is a friend of Waksal, ImClone's founder, who is to be sentenced next week in Manhattan federal court after pleading guilty to six counts in the insider-trading scandal.
Waksal could get six to seven years in prison, plus fines. His defense team is seeking a lighter sentence, and prosecutors are seeking a heavier one - claiming Waksal cheated ImClone shareholders as far back as 1986.
Waksal has admitted he tipped off his daughter Aliza 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's sale of the 4,000 shares came 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.
Just this week, a new study conducted in Europe, found Erbitux worked just as well as a cancer treatment as a disputed ImClone-sponsored study conducted earlier said it did.
Martha Stewart Living Omnimedia produces Martha Stewart Living and Martha Stewart Weddings magazines, a newspaper column, a television show and the popular Martha Stewart Everyday line of home products, like towels and sheets.
Martha Stewart Living Omnimedia reported sales of $295 million and a staff of 580 last year. It includes publishing, television, merchandising, Internet commerce and direct mail.