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CNN Live At Daybreak

Federal Prosecutors Warn of Indictment for Stewart

Aired June 04, 2003 - 05:16   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


CAROL COSTELLO, CNN ANCHOR: Homemaking guru Martha Stewart is about to find herself in the middle of a major legal mess. Stewart's media company says it's been notified she could soon face criminal charges that stem from an insider trading scandal.
CNN's Allan Chernoff has our report.

(BEGIN VIDEOTAPE)

ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): What first appeared to be an awkward step in mud for Martha Stewart has turned into legal quicksand. Federal prosecutors have warned they're going to ask a grand jury to indicate her as early as this week and the Securities and Exchange Commission has warned it will bring a civil complaint.

Her lawyer released a statement saying Stewart would hang tough. "If Martha Stewart is indicted, she intends to declare her innocence and proceed to trial."

This is not what Martha Stewart expected when she unloaded nearly 4,000 shares of ImClone Systems, a company founded by her friend, Sam Waksal. Stewart sold the stock one day before the Food and Drug Administration rejected ImClone's application for review of its cancer drug. After Waksal was charged with insider trading in the stock, Stewart said, "I had no improper information. My transaction was entirely lawful."

And, on a CBS television segment, she brushed the issue off.

MARTHA STEWART: As I said, I think this will all be resolved in the very near future and I will be exonerated of any ridiculousness.

CHERNOFF: Instead, prosecutors kept digging. They gained the cooperation of Doug Fanueil, former assistant to the Merrill Lynch broker that Stewart and Waksal shared. Legal experts say prosecutors may be trying to make an example of Martha Stewart.

JOHN COFFEE, COLUMBIA UNIVERSITY LAW SCHOOL: This is very atypical. In this case, the government is pushing the envelope on what constitutes insider trading further than they've ever pushed it before. And I think it's partly because they have the kind of high profile person who, in this post-Enron world, the government wants to clearly communicate is not above the law.

CHERNOFF (on camera): There still is the possibility that the two sides may reach a plea agreement. But at the moment, it appears Martha Stewart will soon be fighting criminal charges. Her friend Sam Waksal pled guilty to insider trading and he's scheduled to be sentenced next Tuesday.

Allan Chernoff, CNN, New York.

(END VIDEOTAPE)

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com






Aired June 4, 2003 - 05:16   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CAROL COSTELLO, CNN ANCHOR: Homemaking guru Martha Stewart is about to find herself in the middle of a major legal mess. Stewart's media company says it's been notified she could soon face criminal charges that stem from an insider trading scandal.
CNN's Allan Chernoff has our report.

(BEGIN VIDEOTAPE)

ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): What first appeared to be an awkward step in mud for Martha Stewart has turned into legal quicksand. Federal prosecutors have warned they're going to ask a grand jury to indicate her as early as this week and the Securities and Exchange Commission has warned it will bring a civil complaint.

Her lawyer released a statement saying Stewart would hang tough. "If Martha Stewart is indicted, she intends to declare her innocence and proceed to trial."

This is not what Martha Stewart expected when she unloaded nearly 4,000 shares of ImClone Systems, a company founded by her friend, Sam Waksal. Stewart sold the stock one day before the Food and Drug Administration rejected ImClone's application for review of its cancer drug. After Waksal was charged with insider trading in the stock, Stewart said, "I had no improper information. My transaction was entirely lawful."

And, on a CBS television segment, she brushed the issue off.

MARTHA STEWART: As I said, I think this will all be resolved in the very near future and I will be exonerated of any ridiculousness.

CHERNOFF: Instead, prosecutors kept digging. They gained the cooperation of Doug Fanueil, former assistant to the Merrill Lynch broker that Stewart and Waksal shared. Legal experts say prosecutors may be trying to make an example of Martha Stewart.

JOHN COFFEE, COLUMBIA UNIVERSITY LAW SCHOOL: This is very atypical. In this case, the government is pushing the envelope on what constitutes insider trading further than they've ever pushed it before. And I think it's partly because they have the kind of high profile person who, in this post-Enron world, the government wants to clearly communicate is not above the law.

CHERNOFF (on camera): There still is the possibility that the two sides may reach a plea agreement. But at the moment, it appears Martha Stewart will soon be fighting criminal charges. Her friend Sam Waksal pled guilty to insider trading and he's scheduled to be sentenced next Tuesday.

Allan Chernoff, CNN, New York.

(END VIDEOTAPE)

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com