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CNN BREAKING NEWS

Martha Stewart Arrives at Courthouse

Aired June 4, 2003 - 11:55   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

LEON HARRIS, CNN ANCHOR: I am looking at some pictures right now just outside the federal courthouse in New York, and I'm going to presume that that is what we are watching here. That's our Allan Chernoff there stepping in front of the camera. Allan had reported some time earlier this hour that it was quite possible that Martha Stewart would be arraigned -- or, sorry, indicted today. We have not heard whether or not that is going to be the case. We do know that it is quite possible she could be facing charges of either insider trading or obstruction of justice.
Let's keep an eye on this picture. That appears to be Martha Stewart stepping out of that limo. There you see the shot of her. By the face, that is definitely Martha Stewart.

And it appears that she is entering the courthouse. What is left unsaid at this particular point and unreported is whether or not a deal has been reached. We understand that negotiations were still been underway between her camp and the federal authorities.

Perhaps our Allan Chernoff can weigh in on some of that. He is standing by there in front of the courthouse. Allan, can you hear me?

ALLAN CHERNOFF, CNN CORRESPONDENT: Yes, I can, Leon. And it was just a couple of minutes ago. I guess you just showed the video, Ms. Stewart did come in a blue Lincoln Town Car, came out wearing a beige raincoat, beige umbrella, and just walked straight into the court with her attorneys.

This clearly does mean that an indictment has been handed up. We have been waiting for that to happen all morning. And -- also, it was a matter of just waiting for the U.S. attorney, Jim Comi (ph), to sign off on the indictment. So the entire process does take time. Now that she has walked into the courthouse, right behind me, she would be processed at the U.S. Marshall's Office inside of the courthouse, and then she would be arraigned later.

So, it is all a matter of actually getting the papers and finding out specifically what the charges are. But as you said, we have been anticipating that they would most likely would be obstruction of justice and also securities fraud, which essentially is insider trading.

Leon, of course, all this stemming from her sale of about 4,000 shares of ImClone stock the day before the Food and Drug Administration had actually rejected that company's colon cancer drug -- Leon. HARRIS: Well, Allan, you had also reported to us that negotiations could have still been underway. What is it -- is it clear what she could have actually offered in any negotiations at this point?

CHERNOFF: Well, the negotiations had been back and forth for a matter of months. And at this point, it does appear that they just did break down. But the idea that prosecutors had was to try to get Martha Stewart to actually plead to the obstruction of justice charge, and maybe drop the insider trading and securities fraud charge.

The issue here is that it is extremely difficult to prove insider trading, and legal experts say, particularly in this case -- keep in mind the stock she was selling was not the stock of her own company -- and John Coffee (ph), a professor at Columbia Law School yesterday told us that in this situation she had no fiduciary responsibility because she wasn't the executive of ImClone. Of course, she is the executive of her own company.

HARRIS: Exactly. And Sam Waksal, who was the executive of ImClone, he has pleaded guilty as you have also reported earlier.

Now, as I understand it, Martha Stewart could also be facing a civil suit from the SEC as well, in addition to all the other charges?

CHERNOFF: Yes, that is correct. The Securities and Exchange Commission had decided, in fact, months ago that it was going to go forward with a civil complaint against Martha Stewart, and that, most likely, would be a securities fraud complaint.

The SEC had been waiting for the Justice Department to decide exactly what it was going to do, and the U.S. Attorney's Office here in Manhattan had proceeded for a very long period of time, a long investigation.

They were looking not only at Martha Stewart, but at many other people who had been involved in sales of ImClone stock, and those people had included Mariana Pasternak, a friend of Martha Stewart who had been traveling with her on the day that she did engage in that sale of ImClone stock, and also the husband of Mariana Pasternak, Dr. Bart Pasternak. So many people were involved in this investigation. Took a long time. Then you have the back and forth between the prosecutors and the attorneys for Martha Stewart.

And here we are, finally, it appears we are on the verge of Martha Stewart being charged criminally.

HARRIS: All right, very good. Allan Chernoff there outside the federal courthouse in New York, we'll let you go so you can actually go find out some information to report for us. I know you'll be talking with Wolf Blitzer as he takes over for this next hour of coverage.

But there you have it, folks, a late-breaking development, Martha Stewart now entering the courthouse there, the federal courthouse in Manhattan, so stay with us. We'll have more for you on that story, as Wolf Blitzer now takes over our coverage this afternoon -- Wolf.

WOLF BLITZER, CNN ANCHOR: Thank you very much, Leon. And we're going to continue this follow this breaking news story, the expected indictment of Martha Stewart after all of this time. We're going to go back to Allan Chernoff. He's outside the courthouse in New York City in just a few moments.

But CNN's legal analyst, Jeffrey Toobin, is joining us now.

Jeff, let's get our viewers up-to-speed, who may just be tuning in right now. Tell our viewers what we know, and what we don't know.

JEFFREY TOOBIN, CNN LEGAL ANALYST: OK, Martha Stewart has been under investigation for a year-and-a-half now in the insider trading scandal relating to ImClone stock. ImClone was run by a fellow named Sam Waksal, a close friend of hers, who has since pleaded guilty to insider trading.

Martha Stewart sold about $200,000 worth of stock in December of 2001. The question is: Was she tipped off that the next day the Food and Drug Administration was going to issue a negative opinion on this very important product of the company, Erbitux? Was she illegally tipped? That's one part of the investigation.

The second part of the investigation is once these inquiries started in Congress, in the SEC, in the U.S. attorney's office, did she lie? Did she obstruct justice? Did she tell other people to lie?

Those are the two parts of the investigation. It seems clear she's going to be indicted. One of the many questions that will be answered today is: Is she indicted for insider trading or obstruction of justice or for both?

BLITZER: Explain to our viewers the difference of these two charges. Could she -- it's obviously a lot more difficult to prove insider trading than obstruction of justice.

TOOBIN: Yes, insider trading is a very complex crime. It involves the knowing use, the intentional use of information that you know you are not supposed to have. And that's difficult to prove, especially in these circumstances, because basically the proof is, as came out in the congressional hearings and through my own work on the subject, she was told by the assistant to her stockbroker at Merrill Lynch that the Waksals, her friends the Waksals who ran ImClone, were selling their stock.

So, the legal question is: Is it insider trading if you know that insiders are selling, but you are not an insider yourself? Not a clear answer as far as I'm concerned. So, that's a difficult legal hurdle for the government.

When it comes to obstruction of justice, things get somewhat simpler. Do you lie to investigators? Do you tell other people to lie to investigators? That's really what the heart of obstruction of justice is, and that seems to be the most likely heart of the case against her. BLITZER: And only moment ago, Martha Stewart seen here getting out of this sedan, walking into the courthouse in New York City, where it's raining, under an umbrella. She is going inside.

Our Allan Chernoff is outside. He's following all of this.

Allan, bring our viewers up-to-speed precisely what you know is happening inside this courthouse.

ALLAN CHERNOFF, CNN FINANCIAL NEWS: Right. Well, Wolf, here in New York there are two places where a person can be processed when they are being charged, either at the FBI office or right here at the U.S. courthouse behind me. So, Martha Stewart entered, as you said, the U.S. courthouse. She would be processed at the U.S. Marshal's office inside of the courthouse. Then she would have wait for some time and presumably be arraigned a little bit later today with these charges.

But it seems clear that the grand jury has handed up the indictment, and the U.S. attorney, Jim Comi (ph), having signed off on it. And now it's just a matter of time, waiting for the arraignment.

BLITZER: The U.S. attorney for the Southern District of New York, normally they take these white-collar crimes, these alleged crimes quite seriously. And very often they make a big deal out of showing the suspect in the particular case, those charged being handcuffed and brought into some sort of formal prison environment, if you will. Do we expect that to happen with Martha Stewart any time soon?

CHERNOFF: Well, legal analysts have been saying that they certainly do want to make an example of Martha Stewart, because of her fame and show that nobody is above the law. And, in fact, on many occasions we've had the U.S. attorney say exactly that.

In terms of the handcuffs, quite clearly she walked in by herself. It seems clear that they're giving her the courtesy. They're not concerned about Martha Stewart fleeing the jurisdiction, of course.

In the past, Rudolph Giuliani, of course the former U.S. attorney here, had been heavily criticized for using handcuffs in some situations on Wall Street executives, who were charged. And, in fact, in one case, Richard Wigden (ph), a former executive with the now defunct firm Kitter, Peabody, had been led out of his trading room in handcuffs, and later charges were drooped. And Giuliani was quite heavily criticized for that -- Wolf.

BLITZER: All right, Allan, stand by, please.

Jeffrey Toobin, our legal analyst, is still with us.

And, Jeff, you actually interviewed Martha Stewart not that long ago and got a sense of where she is coming from in dealing with these very serious charges. Talk a little bit about that. TOOBIN: Well, I interviewed her for "The New Yorker" magazine, and I have to tell you, this was a woman who was simultaneously shocked and deeply wounded. I mean, I think one of the interesting phenomena of the long investigation of Martha Stewart has been how much people seem to have enjoyed watching her suffer. I mean, she has been a frequent target of the late night comedians. There has been this sort of joy in her suffering that I think is both surprising to her and very wounding.

And on the merits of the charges, I mean, she was completely emphatic. You know, she didn't do it. She is not pleading to anything. She is completely not guilty. I mean, you know, she wouldn't be the first person to say something like that and then cut a deal or then be convicted. But at least when I spoke to her, and it was January, she was completely emphatic in her denials that she did anything wrong in connection with this stock sale.

BLITZER: And briefly, before I let you go, Jeff. If she is indicted today -- and we're all awaiting word, we expect that she will be formally charged -- do we expect to see that very, very embarrassing shot of her in handcuffs?

TOOBIN: Well, you know, I was trying to figure that out. I used to work in that building where this is taking place. I think once she's in the building, there probably is no reason for handcuffs, because all of the courtrooms are connected. She will be processed. She'll be fingerprinted. She'll get her mug shot taken. I don't think once she's in the building there will be any need for handcuffs.

But, you know, things have changed recently. The U.S. attorney's offices around the country are much more interested in these photographs of white-collar defendants in handcuffs, and though it appears that she's not going to be pictured that way, I wouldn't rule it out until the end of the day.

BLITZER: All right, we're going to be watching this very, very closely. Obviously, the minutes ahead, the hours ahead, see when we get that formal word on this expected indictment, criminal indictment of Martha Stewart.

Jeffrey Toobin will be standing by with us throughout day as well. Jeff, thanks very much.

Allan Chernoff still over at the courthouse. We'll be getting back to him as well.

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