Prosecutors Say Martha Lied

In any case, the defense waxed livid. "Martha Stewart has done nothing wrong," Stewart's lawyer said. "Why ... has the government, after nearly a year and a half, chosen to file these charges? Is it for publicity purposes because Martha Stewart is a celebrity? ... Or is it because the Department of Justice is attempting to divert the public's attention from its failure to charge the politically connected managers of Enron and WorldCom who may have fleeced the public out of billions of dollars?"

The government maintained that its choice was the proper one. "A criminal insider trading charge in these circumstances would be unprecedented," Comey explained at the news conference. "Martha Stewart is famous, but that is no reason to treat her differently than anyone else. The SEC has done the right thing by suing [the defendants] for their conduct."

To that end, the SEC is seeking an order requiring Stewart and Bacanovic to disgorge all losses they avoided through their illegal trades, plus civil monetary penalties.

"This isn't about celebrity, it's about accountability," said Kevin Donovan, assistant director in charge of the FBI in New York.

"This is a very strong civil insider trading case," added Wayne Carlin, the SEC's Northeast regional director.

Alleged Conspiracy

Prosecutors broadly allege that Stewart and Bacanovic entered into a conspiracy to obstruct justice after learning that the SEC had launched an investigation in January 2002 into sales of ImClone stock by Stewart and ImClone's founder, Sam Waksal.

The indictment contends that Stewart and Bacanovic chose to "fabricate and attempt to deceive investigators with a fictitious explanation for her sale" of ImClone shares. Specifically, they allege the two made up a story that Stewart and Bacanovic had a "pre-existing agreement to sell the stock if and when the price dropped to $60 per share."