Updated from 10:26 a.m. EDTMartha Stewart Living Omnimedia ( MSO) said it has been informed that the U.S. Attorney's Office for the Southern District of New York has launched a criminal investigation against company founder Martha Stewart. In a press release Tuesday, the company said the U.S. Attorney's Office plans to request that a grand jury return an indictment against her in the near future. Additionally, Martha Stewart Living has received word that a civil complaint by the Securities and Exchange Commission is also expected. The company and its board "have been planning for a number of possible contingencies, are evaluating the current situation and will take action as appropriate." The press release didn't provide any additional details about the investigation, but Martha Stewart was known to have been friends with Sam Waksal, the former CEO of ImClone Systems ( IMCLE), who resigned last year amid an insider trading scandal involving the company's shares. Stewart sold nearly 4,000 shares of ImClone in December 2001, shortly before the company said the Food and Drug Administration had refused its application for the cancer drug Erbitux. The Wall Street Journal reported last October that the SEC would recommend filing civil securities fraud charges against Stewart for her controversial sale of ImClone stock. Stewart has stated that she sold her ImClone shares under an existing stop-loss arrangement. The Journal also reported in October that federal prosecutors were considering filing criminal charges against Stewart for alleged insider trading, as well as obstruction of justice and making false statements about the reason for her sale. Shares of Martha Stewart were losing $1.92, or 17%, to $9.28 in midday New York Stock Exchange trading.
The report indicated that the Justice Department rejected requests for a meeting late last week, raising the pressure on Stewart to respond to the New York prosecutors' offer. A televised report on CNBC said that charges against Stewart could be brought as early as tomorrow. The report indicated that among the criminal charges were allegations of obstruction of justice. Criminal insider trading wasn't among the charges, but the report said that a civil insider trading action was possible. One of her lawyers told CNBC that "if Martha Stewart is indicted, she intends to declare her innocence and proceed to trial." Martha Stewart Living's shareholder meeting gets underway today in New York, and the network reported that guards were posted to keep reporters out. According to the televised report, Stewart wasn't planning to attend the meeting.