SEC May Eject Martha Stewart as CEO of Eponymous Company

24 October 2002

Informants close to the US Securities and Exchange Commission say that the body’s enforcement lawyers are poised to make a non-stylish suggestion to Martha Stewart, the high profile lifestyle maven now more closely associated with the ImClone insider trading scandal than her former role as America’s goddess of good taste.

Stewart, the recent recipient of a dowdy ‘Wells Notice’ (warning of intent to pursue civil securities fraud proceedings) may be given the option of avoiding such unpleasantness by voluntarily stepping down as chief executive of her listed company Martha Stewart Living Omnimedia and paying a substantial fine.

Although Stewart has consistently denied all charges of wrongdoing, incriminating allegations by a former employee of her broker Merrill Lynch, and the admission of guilt by her close friend Samuel Waksal, former ceo and founder of ImClone, has become a Sword of Damocles suspended by a single golden hair above her immaculately coiffed head.

Her resignation just might appease the SEC, whose present stance is described by former federal prosecutor and SEC enforcement lawyer David Gourevitch: “The SEC has made it very clear that it views the integrity of corporate directors and officers as extremely important in light of all the recent egregious finance-fraud cases.”

The Stewart saga has caused an unaccountable attack of zipped lips among the usually voluble entrail-rakers of Wall Street. An exception is Morgan Stanley analyst Douglas Arthur, whose firm has had close connections with MSLO: “I can make the case that this company may be better off with Martha as head of creative strategy and a very professional, experienced individual as chief executive,” he opined.

“The single biggest question hanging over this stock has been what happens if Martha gets run over by a bus. Well, that essentially happened, and the company is still doing well.”

The civil charges against Stewart, if dropped, would make the filing of federal criminal charges less likely.

Shares in Martha Stewart Living Omnimedia rose 13% to $8.50 (€8.70; £5.49) on Tuesday, coincident with the trade-off rumours but still languish nearly 60% below their 12-month high of $20.93. At close Wednesday they had fallen further to $8.32.

Data sourced from: The Washington Post Online; additional content by WARC staff