Martha Stewart Indicted
By Motley Fool Staff
June 4, 2003
Martha Stewart was charged today with securities fraud, obstruction of justice, and making false statements -- all in connection with her sale of ImClone (Nasdaq: IMCLE) stock in 2001.
Stewart, described by Reuters as "wearing a tan rain coat and under cover of a matching umbrella," surrendered to authorities at the federal courthouse in Manhattan. If convicted, she could face more than 10 years in prison.
Stewart sold 3,928 shares of ImClone stock the day before it announced its application for the cancer drug Erbitux had been rejected. Then-CEO Samuel Waksal, a close friend of Stewart, has already pled guilty to tipping off his family to the news.
Shares of Martha Stewart Living Omnimedia (NYSE: MSO) actually rose 8% on today's news, even though the possibility looms that Stewart will resign her position as chairman and CEO. Why? Fool co-founder David Gardner, who has recommended the company in the Motley Fool Stock Advisor, points to two reasons:
"First, the stock market always looks ahead and trades ahead," he said. "In Martha Stewart Omnimedia's case, the stock dropped 15% yesterday because it was a virtual certainty Martha would be indicted. Sellers, therefore, had already sold. The sellers were gone replaced by opportunistic buyers today who believe, like me, that both Martha and her company will survive. (I personally don't believe she'll do jail time.)
"And second reason: I think Martha Stewart stock is a good bet here. That's another reason it went up today. It is still cash-rich with no debt, and remains a worldwide brand with high-quality products. The founder may be disliked by many, and they get all their quotes in the headlines these days. But Martha is also loved by many others. I first recommended the stock at $6 because I believe the market dramatically overreacted to this story. I would buy more, here."
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