Prosecutors Say Martha Lied

Backlash

The indictment does not specifically charge either defendant with the crime of insider trading, although the SEC brought a civil charge against Stewart claiming that offense. The securities fraud allegation against Stewart stems from her alleged attempt to mitigate the damage caused by the ImClone scandal to the stock of her own company, Martha Stewart Living. She owns 61% of the stock and has lost millions of dollars as her company and stock have been hit by the scandal.

Prosecutors contend that last summer, when the investigation of Stewart's stock sales became public, Stewart tried to prop up Martha Stewart Living stock with "a series of false and misleading public statements" that sought to explain her conduct. One of those false statements was Stewart's contention that "she had cooperated with the SEC and U.S. Attorney's Office 'fully and to the best of my ability.'"

Lawyers said the securities fraud allegation against Stewart is unusual because it's not uncommon for people under investigation to contend they did nothing wrong, and rarely is anyone charged with a crime for publicly stating his or her innocence.

Some corporate lawyers were incensed by the indictment, especially after learning that prosecutors failed to charge Stewart with insider trading. "This is gutless by the government," said Saul Cohen, a corporate lawyer in New York with Proskauer Rose. "They don't have an insider criminal case and they couldn't prove it, so they are trying to go after her for peripheral things."

Not everyone was convinced, however. Ira Sorkin, a noted white-collar defense lawyer, pointed out that it's difficult to determine the overall strength of the prosecution's case without seeing some of the evidence. "We don't know the strength of their case," he said.

Law experts noted that it's far easier for the SEC than for federal prosecutors to charge Stewart with insider trading, because the burden of proof is lower in a civil proceeding. Also, in a criminal case, a defendant must be convicted by an unanimous jury. But in a civil proceeding, jury verdicts do not have to be unanimious.