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Martha Stewart Steps Down as Company CEO After Pleading Not Guilty
Aired June 05, 2003 - 10:00 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.
LEON HARRIS, CNN ANCHOR: Now another lesson in money maneuvering and what critics call malice. Domestic diva Martha Stewart has stepped down as head of her media empire just hours after being slapped with an indictment that could send her to prison.
Our financial news reporter, Allan Chernoff, joins us with more this morning. Allan was here when this news broke yesterday.
Good morning -- Allan.
ALLAN CHERNOFF, CNN FINANCIAL NEWS: Good morning to you, Leon.
And there may be some debate about Martha Stewart's stock trading, but there is certainly no debate that Martha Stewart is one savvy woman. She is taking her fight straight to the people.
Have a look at this: a full-page ad this morning in "USA Today", which, by the way, cost her $73,000. And in this ad, she says: "I am confident I will be exonerated of these baseless charges, but a trial unfortunately won't take place for months. I want to thank you for your extraordinary support during the past year. I appreciate it more than you will ever know."
And in the ad she goes on to advertise a special Web site, Marthatalks.com. On that Web site is this ad, also a statement from her attorneys, and an opportunity for people to e-mail straight to her. So, she is trying to drum up some serious public support.
Yesterday, as you said, Martha Stewart did step down as chairman and chief executive officer of her company, Martha Stewart Living Omnimedia. She, however, will remain a director, and she's taking on the new role of chief creative officer at Martha Stewart Living Omnimedia.
Now, all of this coming after she faced criminal and civil charges yesterday.
(BEGIN VIDEOTAPE)
CHERNOFF (voice-over): Martha Stewart arrived in court to face charges she and her stockbroker engaged in a cover-up to hide the truth about her sale of ImClone stock.
JAMES COMEY, U.S. ATTORNEY: This criminal case is about lying, lying to the FBI, lying to the SEC and lying to investors. That is conduct that will not be tolerated by anyone. Martha Stewart is being prosecuted not because of who she is, but because of what she did.
CHERNOFF: The criminal charges include obstruction of justice, false statements and securities fraud. In court, Stewart and broker, Peter Bacanovic, pled not guilty. Their lawyers are pledging to win at trial.
The Securities and Exchange Commission filed a separate civil charge against Stewart and her broker of securities fraud, alleging illegal insider trading.
WAYNE CARLIN, SEC: This was information that would be reported to any investor. Martha Stewart had the information, and Martha Stewart had no right to have the information or to trade on it.
CHERNOFF: In a written statement, Stewart's attorneys said: "Martha Stewart has done nothing wrong. The government is making her the subject of a criminal test case." Stewart was released without posting bond and left the court to squeeze through a mob of photographers.
(END VIDEOTAPE)
Leon, to many people, those pictures are very sympathetic towards Martha Stewart. In fact, even this morning, several people who told me that they are not Martha Stewart fans said that they believe the government is coming down too hard on Martha Stewart.
So, it looks like we're going to have a debate here not only about the actual issues in the courthouse, but also, once again, about the personality of Martha Stewart herself.
HARRIS: And basically, based upon what we saw in that advertisement in "USA Today" and what's on that Web site, that's exactly what Martha Stewart and her lawyers are banking on, too.
CHERNOFF: Exactly right. She is definitely trying to drum up some public support for herself, and it looks like she is going to have a significant amount.
HARRIS: All right, we'll watch and see how all of that plays out. Thanks, Allan -- Allan Chernoff of CNN financial news.
Now, Martha Stewart's resignation as head of her company is just the latest blow to an empire that has her name plastered from all the way from living room televisions in America all the way to bathroom towels and everything in between. Revenue for the company in the first quarter plunged 15 percent from the same time last year.
Mary Snow checks in right now. She is outside the New York headquarters of Martha Stewart Living Omnimedia.
Good morning -- Mary. What's the word there?
MARY SNOW, CNN FINANCIAL NEWS: Good morning, Leon.
Well, you know, it looks like business as usual right behind me at the headquarters of Martha Stewart Living Omnimedia, as you mentioned. But on the 25th floor of that building, it is anything but business as usual, as the company grapples with what could probably best be described as a public relations nightmare.
And, as Allan was just pointing out, while Martha Stewart is really trying to drum up public support, we have a new survey out today from a company called Brand Keys, and it takes a pulse on consumer loyalty. It points out that Martha Stewart's brand loyalty reached an all-time high last April. This was before she was publicly linked to the ImClone stock scandal. It dropped to 83 from 120, 83 being a reading just this Tuesday, and dropped even further this morning, the morning after the indictment to 79. So, we see consumer loyalty slipping there.
And what the company really has to grapple with is the fact that Martha Stewart is the brand on everything from the merchandise that you see in KMart stores to her magazine. And as she takes on the role of creative director, she has given over the role of CEO to Sharon Patrick, who had been president of the company. That was not a move that was a surprise. Also, this role of chairman goes to Jeffrey Ubben, who is the second largest shareholder.
And really what analysts are saying is that the move is good in the long term if it is not just a title change, but they need to see a real turnaround at the company. But short term, the company really has to fight to win consumer loyalty, and also the loyalty of advertisers, because advertising revenue makes up a good bulk of the overall revenue for the company. And many analysts are expressing concern that advertisers will shy away from this controversy.
And then also there is the issue of the stock price. The stock is up slightly today. It was up yesterday. But since a year ago, it has been cut nearly in half in terms of share price. So, many hurdles for this company to face -- Leon.
HARRIS: All right, Mary, you mentioned the stock price, you mentioned loyalty amongst the consumers. What about the loyalty of those who actually hold the stock right now? Has there been any sounds at all coming from the major investors in this company by what they want to see happen and what they think about where things have taken them so far?
SNOW: Well, It will be interesting to see what happens, because with Jeffrey Ubben being mentioned now as -- or being named as the chairman -- he is the second largest shareholder behind Martha Stewart. So, it will be interesting to see what kind of changes he will put in place now that he has this new role.
HARRIS: Very interesting. Thank you very much, Mary -- Mary Snow live in New York.
SNOW: Sure.
HARRIS: Appreciate that.
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com.
Not Guilty>
Aired June 5, 2003 - 10:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
LEON HARRIS, CNN ANCHOR: Now another lesson in money maneuvering and what critics call malice. Domestic diva Martha Stewart has stepped down as head of her media empire just hours after being slapped with an indictment that could send her to prison.
Our financial news reporter, Allan Chernoff, joins us with more this morning. Allan was here when this news broke yesterday.
Good morning -- Allan.
ALLAN CHERNOFF, CNN FINANCIAL NEWS: Good morning to you, Leon.
And there may be some debate about Martha Stewart's stock trading, but there is certainly no debate that Martha Stewart is one savvy woman. She is taking her fight straight to the people.
Have a look at this: a full-page ad this morning in "USA Today", which, by the way, cost her $73,000. And in this ad, she says: "I am confident I will be exonerated of these baseless charges, but a trial unfortunately won't take place for months. I want to thank you for your extraordinary support during the past year. I appreciate it more than you will ever know."
And in the ad she goes on to advertise a special Web site, Marthatalks.com. On that Web site is this ad, also a statement from her attorneys, and an opportunity for people to e-mail straight to her. So, she is trying to drum up some serious public support.
Yesterday, as you said, Martha Stewart did step down as chairman and chief executive officer of her company, Martha Stewart Living Omnimedia. She, however, will remain a director, and she's taking on the new role of chief creative officer at Martha Stewart Living Omnimedia.
Now, all of this coming after she faced criminal and civil charges yesterday.
(BEGIN VIDEOTAPE)
CHERNOFF (voice-over): Martha Stewart arrived in court to face charges she and her stockbroker engaged in a cover-up to hide the truth about her sale of ImClone stock.
JAMES COMEY, U.S. ATTORNEY: This criminal case is about lying, lying to the FBI, lying to the SEC and lying to investors. That is conduct that will not be tolerated by anyone. Martha Stewart is being prosecuted not because of who she is, but because of what she did.
CHERNOFF: The criminal charges include obstruction of justice, false statements and securities fraud. In court, Stewart and broker, Peter Bacanovic, pled not guilty. Their lawyers are pledging to win at trial.
The Securities and Exchange Commission filed a separate civil charge against Stewart and her broker of securities fraud, alleging illegal insider trading.
WAYNE CARLIN, SEC: This was information that would be reported to any investor. Martha Stewart had the information, and Martha Stewart had no right to have the information or to trade on it.
CHERNOFF: In a written statement, Stewart's attorneys said: "Martha Stewart has done nothing wrong. The government is making her the subject of a criminal test case." Stewart was released without posting bond and left the court to squeeze through a mob of photographers.
(END VIDEOTAPE)
Leon, to many people, those pictures are very sympathetic towards Martha Stewart. In fact, even this morning, several people who told me that they are not Martha Stewart fans said that they believe the government is coming down too hard on Martha Stewart.
So, it looks like we're going to have a debate here not only about the actual issues in the courthouse, but also, once again, about the personality of Martha Stewart herself.
HARRIS: And basically, based upon what we saw in that advertisement in "USA Today" and what's on that Web site, that's exactly what Martha Stewart and her lawyers are banking on, too.
CHERNOFF: Exactly right. She is definitely trying to drum up some public support for herself, and it looks like she is going to have a significant amount.
HARRIS: All right, we'll watch and see how all of that plays out. Thanks, Allan -- Allan Chernoff of CNN financial news.
Now, Martha Stewart's resignation as head of her company is just the latest blow to an empire that has her name plastered from all the way from living room televisions in America all the way to bathroom towels and everything in between. Revenue for the company in the first quarter plunged 15 percent from the same time last year.
Mary Snow checks in right now. She is outside the New York headquarters of Martha Stewart Living Omnimedia.
Good morning -- Mary. What's the word there?
MARY SNOW, CNN FINANCIAL NEWS: Good morning, Leon.
Well, you know, it looks like business as usual right behind me at the headquarters of Martha Stewart Living Omnimedia, as you mentioned. But on the 25th floor of that building, it is anything but business as usual, as the company grapples with what could probably best be described as a public relations nightmare.
And, as Allan was just pointing out, while Martha Stewart is really trying to drum up public support, we have a new survey out today from a company called Brand Keys, and it takes a pulse on consumer loyalty. It points out that Martha Stewart's brand loyalty reached an all-time high last April. This was before she was publicly linked to the ImClone stock scandal. It dropped to 83 from 120, 83 being a reading just this Tuesday, and dropped even further this morning, the morning after the indictment to 79. So, we see consumer loyalty slipping there.
And what the company really has to grapple with is the fact that Martha Stewart is the brand on everything from the merchandise that you see in KMart stores to her magazine. And as she takes on the role of creative director, she has given over the role of CEO to Sharon Patrick, who had been president of the company. That was not a move that was a surprise. Also, this role of chairman goes to Jeffrey Ubben, who is the second largest shareholder.
And really what analysts are saying is that the move is good in the long term if it is not just a title change, but they need to see a real turnaround at the company. But short term, the company really has to fight to win consumer loyalty, and also the loyalty of advertisers, because advertising revenue makes up a good bulk of the overall revenue for the company. And many analysts are expressing concern that advertisers will shy away from this controversy.
And then also there is the issue of the stock price. The stock is up slightly today. It was up yesterday. But since a year ago, it has been cut nearly in half in terms of share price. So, many hurdles for this company to face -- Leon.
HARRIS: All right, Mary, you mentioned the stock price, you mentioned loyalty amongst the consumers. What about the loyalty of those who actually hold the stock right now? Has there been any sounds at all coming from the major investors in this company by what they want to see happen and what they think about where things have taken them so far?
SNOW: Well, It will be interesting to see what happens, because with Jeffrey Ubben being mentioned now as -- or being named as the chairman -- he is the second largest shareholder behind Martha Stewart. So, it will be interesting to see what kind of changes he will put in place now that he has this new role.
HARRIS: Very interesting. Thank you very much, Mary -- Mary Snow live in New York.
SNOW: Sure.
HARRIS: Appreciate that.
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com.
Not Guilty>
