Martha Stewart Seeks Fraud Charge Dismissal

08 October 2003

Fallen US homemaking guru Martha Stewart is trying to have two of the five criminal charges she faces thrown out of court.

Stewart's lawyers have filed a motion with the Federal District Court in Manhattan requesting that charges of securities fraud and obstruction of justice be dismissed.

The domestic oracle was indicted in June in relation to the insider trading scandal at biotech firm ImClone. Stewart sold nearly 4,000 shares in the company one day before its stock slumped on news regulators had blocked one of its cancer drugs.

However, Stewart was not actually charged with insider trading, but with blocking the inquiry (obstruction of justice) and issuing false statements designed to prop up the stock price of her merchandising and media firm Martha Stewart Living Omnimedia (securities fraud).

The lawyers denounced the latter indictment in particular as "unprecedented, unconstitutional, and unwise." The charge, they contend, "seeks to criminalize Ms Stewart's public declarations that she had not engaged in insider trading in making a personal stock sale. It violates the First Amendment, the Due Process Clause, and the securities statute itself."

One of the issues involved is the connection between the personal fortunes of Martha Stewart and the business performance of MSLO. So close is this link that the firm's share price plummeted as the homemaker was caught up in the scandal – hence prosecutors' claims that Stewart's statements about her personal involvement in the ImClone affair constituted an attempt to help her company's stock price.

Stewart's lawyers are trying to undermine this link, claiming that even in cases where a person and a business are closely entwined, the individual is under no extra responsibility when making personal statements. The motion argues that the law under which Stewart is charged "was never intended to impose on such persons special duties of disclosure with respect to their private lives."

Prosecutors have until November 5 to respond.

Data sourced from: multiple sources; additional content by WARC staff