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CNN BREAKING NEWS

Stewart Indicted on 9 Counts

Aired June 4, 2003 - 12:30   ET

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

WOLF BLITZER, CNN ANCHOR: We are getting breaking news right now.
CNN has just learned that Martha Stewart has, indeed, been indicted inside that federal courthouse in New York City, indicted specifically on charges that -- we don't know precisely yet what those charges are, presumably obstruction of justice and perhaps, also, insider trading. Insider trading, by all accounts, being a much more difficult charge to prove. Obstruction of justice being somewhat easier to prove inside a courthouse.

Once again, Martha Stewart -- Martha Stewart has been indicted, criminal charges, and now we are confirming obstruction of justice charges filed against Martha Stewart only within the past few minutes. We saw the videotape of her arriving in the courthouse just a little while ago.

CNN's Allan Chernoff is outside that courthouse right now, he is joining us live.

Allan, what else can you tell us? I assume the stockbroker who was involved in this allegedly illegal insider trading, Peter Bacanovic, has he arrived at the courthouse as well? Any sight of him?

ALLAN CHERNOFF, CNN CORRESPONDENT: Wolf, we haven't had sight of him just yet, but we do know that he is going to be here if he hasn't snuck in already, but we do know that this is a nine-count indictment against both Martha Stewart and her stockbroker from Merrill Lynch, Peter Bacanovic and it is going to cover securities fraud for Martha Stewart, that being the primary charge against her, and insider trading is a form of securities fraud. Also, it would include obstruction of justice and for Peter Bacanovic, obstruction of justice also a charge against him.

The total: nine counts, and we don't have all the details just yet. We're waiting to get them from the U.S. attorney's office. But moments ago, we did confirm all of this -- Wolf.

BLITZER: All right. Dramatic developments. Allan stand by, because Jeffrey Toobin, our legal analyst who has followed this story very, very closely in recent months, is joining us as well.

What do you make? Nine counts, securities fraud, which is a form of insider trading, we just heard from Allan as well as obstruction of justice. JEFFREY TOOBIN, CNN LEGAL ANALYST: Well, what's most interesting about this, I think, is that Peter Bacanovic is her co-defendant. One of the things that had been hovering about this case is whether Peter Bacanovic would flip, whether he would inform on Martha Stewart, because he is the one who had the relationship with her. He's the one who would talk to her about -- about her personal finances. He obviously has not flipped yet. He is a co-defendant. This, at one level, makes the government's job easier, because they can say, Well, here they were all corrupt, or it makes the government's case harder because there's no witness -- there is no witness to say Martha Stewart knew what she was doing was wrong. So it sets up a very interesting dynamic, the trial, to have two defendants as opposed to one.

BLITZER: There was someone else who worked in Merrill Lynch, a younger associate there who apparently has been cooperating with the prosecutors. Remind our viewers what this supposed witness might be able to provide to the prosecution, the U.S. attorney for the Southern District of New York?

TOOBIN: His name is Faneuil, and he was the assistant to the stockbroker, he -- Douglas Faneuil. Faneuil was the assistant to the stockbroker, and on the day that Martha Stewart made her now-infamous trade in ImClone stock, he was at the desk as the intermediary between Bacanovic, who was in Florida, and Martha Stewart, who was in San Antonio on her way to Mexico. He had contact with both of them. He is, actually, I think, a potentially much more devastating witness against Bacanovic because he was speaking to Bacanovic much more, knew Bacanovic much better than he is against Stewart. As I understand it, according to his testimony, he only spoke to Martha Stewart once, had a brief conversation with her.

He has pled guilty. He's entered into a plea bargain to a misdemeanor, admitting that he was -- made initially misleading statements to the government at the request of Bacanovic, about these whole transactions.

So I think Faneuil is a much more damaging witness against Bacanovic than he is against Martha Stewart, although he will certainly testify against both.

BLITZER: All right. Stand by, Jeffrey, because I want to bring Allan Chernoff back in, Jeffrey.

The indictment, nine count indictment, what is the actual procedure that unfolds now? Will there be news conferences? Will there be statements from the U.S. attorney for the Southern District of New York? What do we anticipate seeing on our television screens over the coming hours?

CHERNOFF: Well, Wolf, certainly in terms -- Wolf, actually, I've just been handed the counts over here against Martha Stewart and Peter Bacanovic, so let me just interrupt over there, and as I said, it is a nine-count indictment, and it is including conspiracy to obstruct justice, make false statements, and commit perjury. So those are the primary charge, and the two of them actually are being charged together, Martha Stewart and Peter Bacanovic, joint defendants over here, exactly as Jeffrey Toobin had just said. The entire complaint itself, the indictment, 41 pages, and just been handed to me -- Wolf.

BLITZER: Why don't you go ahead and read a little bit of that, and we'll get back to you, Allan, in just a few minutes. I know you can read quickly, and we'll get your summary of what the headlines are from that lengthy indictment, nine counts.

What you just heard, Jeffrey, what does that say to you, the specific allegations that are contained in that document?

TOOBIN: Well, the thing I'm really very anxious to know from this document is whether it accuses Martha Stewart of any obstruction of justice beyond lying to investigators, because the really damaging evidence against her, if it exists, would be that she tried to get other people to lie, that she conspired with -- with other people to try to get them to make false statement, as opposed to just talking about what she did herself.

Forty-one pages is very long for an indictment, especially one that's only nine counts. So it will lay out much of the government's case, not all of it to be sure, but it will really describe what the crimes are.

BLITZER: We've been getting a ton of e-mail on this case, Jeffrey, I'm sure you have as well.

Many of our viewers who love Martha Stewart think this is a waste of taxpayer dollars, the amount of money allegedly involved in the insider trading was not all that significant compared to some of the corporate scandals that have unfolded in the United States in recent months and years, and they're just trying to do a show trial against her.

What would the prosecution, the U.S. attorney, for example, what would they say in response to those kinds of accusations, that they're simply engaging in a witch-hunt against this powerful woman?

TOOBIN: Well, I think this fairness to the government, it has to be pointed out that the way this case came about was that Merrill Lynch basically blew the whistle on their own client, Sam Waksal. Sam Waksal, who was the CEO of ImClone would try to sell stock on this day, millions of dollars worth of stock, and he was stopped by Merrill Lynch, who said you can't trade in your own stock in this way.

That was reported to the government. The government opened an investigation. They then looked at other people who sold that day, discovered that Martha Stewart, Waksal's close friend, also sold stock, so it was a natural way to investigate.

Now, that's the defense of the government. Remember, there was a big congressional investigation last summer of Martha Stewart on this subject. That's a little harder to justify. If was hard for me to understand why the House of Representatives needed to invest all these resources in a very minor insider trading case. I mean, it's worth keeping in mind that the amount of money that Martha Stewart saved by selling her stock on December 27 as opposed to December 28 was $47,000. This, for a woman who, for a while, was a billionaire.

So this was not a lot of money, but it's still illegal to engage in insider trading, regardless of how much money is at stake.

BLITZER: If, in fact, that's what she did. Jeffrey, stand by, Allan Chernoff has now digested some of this document, some of this indictment. Allan, what can you tell us?

CHERNOFF: Wolf, very interesting regarding the obstruction of justice charge against Martha Stewart. The indictment here is saying that Martha Stewart actually deleted the substance of a phone message from Peter Bacanovic, her broker at Merrill Lynch -- and I'm quoting from the indictment saying changing the message from -- quote -- "Peter Bacanovic thinks ImClone is going to start trading downward" to "Peter Bacanovic re: ImClone," substance about ImClone.

And then after altering that message, apparently Martha Stewart then directed her assistant to return the message to its original wording. So that's one portion of the entire charge of obstruction of justice.

Now another portion of this, the obstruction charge against Martha Stewart, they are also saying here -- the indictment states that Martha Stewart did lie about the claim that she had an agreement with her broker to sell ImClone stock if the price fell below $60 a share.

So those are two of the portions of the obstruction claim -- Wolf.

BLITZER: All right. Allan, I want you to continue reading in there, and get some more important information for us.

CNN's Andy Serwer of "Fortune" magazine is joining us on the phone. He has been covering this case from day one. We have spoken often about it.

Andy, you've been hearing the news, what's going through your mind as you try to absorb this very important development in the life of Martha Stewart?

ANDY SERWER, EDITOR AT LARGE, "FORTUNE": Well, Wolf, it really has been a long, strange trip, hasn't it? It began in December 2001. News of the investigation came out about a year ago. There were a lot of fingers pointed at the feds after a couple months saying they really didn't have the goods on her, and what strikes me as interesting, and Jeff Toobin can speak to this too, that so often you see that the cover-up is actually worse than the crime, and it looks like nailing her on this obstruction charge or charging with it is what is really critical here, and, of course, if she is guilty of these charges, she probably will not be able to be an officer of a public company, which would be devastating to her, and then just spinning the whole thing forward, maybe she becomes sort of some consultant to the company while they have to get another CEO, watching her relationship with this company, and after all she is the brand, Wolf, will be extremely interesting as we move forward here. BLITZER: Which raises the question, if you can answer it, Andy -- given the stakes involved, and the stakes for her company and for her, why didn't she reach some sort of plea agreement, pleading guilty to some relatively minor charge in exchange for allowing her to continue in her business?

SERWER: Well, maybe the feds were not offering that up, Wolf. You have got to remember, the environment has changed so much over the past year and a half that law enforcement now does not want to be seen as backing off, particularly in a very high-profile case.

Remember, she's sort of the first and really the only celebrity who's been charged or accused of malfeasance. The rest of these people, I mean, who has every heard of them? Martha Stewart very much of a public figure, and I think the stakes were so high for investigators they may not have seen fit to be able to compromise in a situation where she would get off easily -- or at least seem that way by the public.

BLITZER: Good point, thanks to Andy Serwer. We're going to be checking back with you throughout the day as well.

Let's go back to Allan Chernoff. He is outside the federal courthouse in New York City where Martha Stewart has just been indicted, together with her former stockbroker from Merrill Lynch, Peter Bacanovic.

You have been reading, continuing to read this formal indictment, 40 plus pages. Allan, what else is in there?

CHERNOFF: Well, Wolf, I'm looking at one portion here, and they refer to Peter Bacanovic, the broker, providing an altered worksheet to a Merrill Lynch manager with the intent that the worksheet be produced to the SEC.

Now, I haven't had time to go through all of it, but recall Martha Stewart had claimed that she had sold her 4,000 -- nearly 4,000 shares of ImClone stock based upon an agreement with her broker that she would sell when the price fell below $60 a share.

However, there was no stop loss order. That's the Wall Street firm -- the Wall Street term for this type of a sale. And then, what was produced to the authorities were some handwritten notes on the side of a piece of paper with the number "60."

So this is, perhaps, referring to that Peter Bacanovic's notes, and it seems that they are stating in this indictment that those notes really were an effort to conceal any true -- any true reason for the actual sale of that stock.

The counts again, a nine-count indictment that we have over here. More than 40 pages against both Martha Stewart and Peter Bacanovic. The primary charge against the broker would be obstruction of justice. Martha Stewart being charged with securities fraud as well, and perjury is another count over here, making false statements. So, Wolf, it seems like a fairly comprehensive indictment. This, obviously, has been in the works for quite some time, as Jeff Toobin has pointed out, it has been months and months that the investigation has been ongoing.

BLITZER: All right, Allan Chernoff, we're going to be getting back to you. Thanks, Allan, very much for that solid reporting. Jeffrey Toobin, our legal analyst, is still standing by, trying to digest, monitoring what's going on.

Jeffrey, give us some perspective, but as you do, walk us through what we can anticipate will happen in the coming hours.

TOOBIN: What will happen today in all likelihood is that Jim Comey, the U.S. attorney for the southern district, the boss of the office that filed these charges, will have a press conference there in Lower Manhattan and explain the charges and take some questions.

What we don't know, and certainly the high drama here is whether Martha Stewart will say anything. She will be processed. She will go before a judge. One of the very interesting things, important things that will happen is a judge will be assigned to this case. A lot depends on who the judge is who is assigned. She will be arraigned before the judge, and will enter a plea. She will either say "not guilty" herself, or some judges allow the lawyer to say, Please enter a not guilty plea on behalf of my client.

And they will begin to set a schedule for the case. But usually, there is a press conference by the prosecutor, and perhaps some sort of statement by her attorneys, Robert Morvillo and John Saverice (ph) or Martha Stewart herself will say something.

Wolf, if I can just add one point to something that Allan said, there was a very interesting new claim in the indictment, something that has never been disclosed publicly, as far as I'm aware. This assertion that Martha Stewart altered a phone message from Peter Bacanovic, and then re-altered it back to its original form. I've never heard that before, potentially very devastating evidence against her, important new disclosure, at least, a new claim in this indictment.

BLITZER: And might explain why the prosecution decided not necessarily to offer a plea agreement. We don't know if they did or if they didn't. We might be hearing from the U.S. attorney, as you say, coming up. A lot of unanswered questions still. We will, of course, have complete coverage throughout the afternoon here on CNN.

Jeffrey Toobin, Allan Chernoff, thanks very much. Andy Serwer as well. We'll be getting back to all of you in the coming hours. I don't want to forget CNNfn's Mary Snow.

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