Stewart Charged with Securities Fraud, Obstruction of Justice
MILES O'BRIEN, ANCHOR: Martha Stewart charged in a nine-count indictment with securities fraud and obstruction of justice charges. Stewart arrived late this morning at the federal courthouse in Manhattan. The criminal indictment is related to an insider trading scandal that has been swirling around the domestic arts mogul for 16 months now. Stewart's stockbroker is also charged in the indictment. Allan Chernoff of CNN financial news is out in front of the courthouse, as he has been all this morning, giving us full the details. You've literally been reading this indictment on the fly and sharing details with us. I put you in a tough spot, I know, Allan, but what have you been able to glean so far?</s>ALLAN CHERNOFF, CNN CORRESPONDENT: OK, Miles, well, the nine counts here both against Martha Stewart and her stockbroker from Merrill Lynch, Peter Bacanovic. We should note, Peter Bacanovic was fired from Merrill Lynch. Now these charges against Martha Stewart include obstruction of justice and also false statements, in addition to that, securities fraud. Now, this is very interesting because the securities fraud is not insider trading. I repeat, not insider trading. Because what the indictment states here is that she is being charged with trying to stop, or at least show down, the decline of the stock of her own company, Martha Stewart Living Omnimedia, and she is charged with doing that by making false statements about her sale of the nearly 4,000 shares of ImClone stock. Also within this indictment that I'm holding right here, Martha Stewart is also charged with making false statements to federal investigators. And in addition, charged with altering a phone message from Peter Bacanovic, again, her broker from Merrill Lynch. That phone message had stated that, quote, "Peter Bacanovic thinks ImClone is going to start trading downward." Martha Stewart is charged with changing that message to say "Peter Bacanovic re: ImClone," regarding ImClone. So that is just part of the charge of making false statements and obstruction of justice that she is facing right now. As we've reported, Martha Stewart, right now, inside of the courtroom. She arrived here approximately, I would say, a little more than an hour ago -- Miles.</s>O'BRIEN: All right, Allan Chernoff. Keep a close watch for us, continue gleaning through that 41-page indictment and, please, share details with us as they become known to you. Let's get right over to our legal affairs analyst, Jeffrey Toobin, who's been watching this case very closely, recently had an interview with Martha Stewart. Not many people can say that. Jeff Toobin, good to have you with us.</s>JEFFREY TOOBIN, CNN LEGAL ANALYST: Hey, Miles.</s>O'BRIEN: This is a very interesting twist that I hadn't thought of, the securities fraud allegation involves statements that she made in order to protect her own stock after this scandal became evident. Would you have predicted that one?</s>TOOBIN: Boy, I sure didn't. I mean, interesting theory, on the government's part. I'm not sure it will stand up in court. It will certainly be challenged, although there is a certain surface logic to it. That if your priority, as Martha Stewart's was, was to keep her stock value up, and if you make false statements to the public in order to do that, that could be a form of fraud. I think it's an unusual theory, but I don't think it's out of the question. Certainly, it's something that will be tested by a judge before there's any trial in this case.</s>O'BRIEN: Well, you've said many time that you felt that the government would have a hard time proving insider trading. Is this going to be an easier thing to prove?</s>TOOBIN: You know, I don't know. I think it's unusual. I think it might be. Insider trading is a much simpler crime to prove: lying, you know, altering documents. I think what's very interesting about the indictment is the accusation that she altered a phone message and then re-altered it back to its original form. You know, I'm very familiar with the news coverage of this case. I'm very familiar with my own work in the case. That's something new. That accusation had never come to light before. Obviously, there will be testimony from someone who saw her do this, perhaps even her own secretary, setting up some potential high drama there. But, you know, that's the kind of thing that could really sink you, if you're caught altering phone messages to deceive investigators.</s>O'BRIEN: I guess it raises the possibility of down the road her stockholders coming after her, although that's sort of already brewing, isn't it?</s>TOOBIN: You know, another interesting question coming out of that is just yesterday was the annual meeting of her company, where she hadn't been indicted yet, so there had been no change in her status there. Is she still going to be the chairman and CEO of Martha Stewart Living Omnimedia? How can you run a company called Martha Stewart Living Omnimedia without Martha Stewart? What happens to the company? Does she stay on, in any capacity at all? Something we should probably know by the end of the day.</s>O'BRIEN: Let's talk about the obstruction of justice charges for just a moment. You can probably cite them all chapter and verse, where she's sort of on record saying things that ultimately have not borne themselves out as fact.</s>TOOBIN: Well, this is the key issue in the case, and has been the key issue from the very beginning. Is that she sold the stock on December 27 and the stock plunged the next day, because the FDA came out with this adverse ruling. Her explanation from day one has been that she had a preexisting plan with Peter Bacanovic to sell the stock when it went to $60, not that she had any -- she did not sell it because of any inside information, she had this preexisting plan to sell at $60. Now, the question is, can the government prove that this $60 -- this plan was just a lie to cover up her real reason for selling the stock? But that's the heart of the case against her, although the new twist here, is this alteration of evidence charge, this business of altering the phone message. Puts her behavior in a much more sinister light, if the government can prove it.</s>O'BRIEN: All right. Give us insight, if you can, into what is going on in Martha Stewart's mind. You've had a chance to talk to her. Not many people in our realm, the Fourth Estate, have had a chance to do that. Is she feeling put upon, under siege, what's the word?</s>TOOBIN: Boy, I mean, this -- you know, she was putting up a brave face with me, but this woman is furious. She simply cannot believe it. This is a woman who is worth -- you know, a little more than a year ago, a billion dollars. By selling the stock on December 28 versus -- the 27 versus the 28 she saved herself $47,000. That's a lot of money to most people, but it wasn't a lot of money to her. This idea, as she called it in her famous brief interview on the CBS morning show, this ridiculousness. She simply cannot believe it. You know, she's putting up a brave face, at least she was with me. And she's been out in public a great deal. But she is furious and she is hurt. One of the things that's been shocking to me, frankly, about this story, is the tremendous joy that so many people seem to have taken in her suffering. You know, how much fun has been made of -- Leno, Letterman, you know, Conan O'Brien, I think that's been hurtful to her, and also very surprising.</s>O'BRIEN: Jeff Toobin, thanks very much. We'll check in with you in a bit. This story still unfolding for us. Justice>