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CNN BREAKING NEWS

U.S. Attorney Makes Statement About Stewart Case

Aired June 4, 2003 - 14:00   ET

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

MILES O'BRIEN, CNN ANCHOR: We begin this hour with Martha Stewart's less than cordial invitation to Federal Court and a hearing in New York. As you know, if you've been watching CNN this morning, a grand jury there has indicted the self styled queen of gracious living on charges ranging from securities fraud to obstruction of justice.
Stewart didn't send regrets and her lawyers say she has done nothing wrong because she didn't do anything wrong. Instead, she braved rain and reporters to appear at the courthouse in person and that is where we find CNN's Allan Chernoff who has been doing an Evelyn Wood on that 41-page indictment and by now should be able to tell us everything that's in it -- Allan.

ALLAN CHERNOFF, CNN CORRESPONDENT: Well, Miles, the charges against Martha Stewart are pretty much all about a cover-up. The federal prosecutors are charging that Martha Stewart lied in interviews with the FBI, Securities and Exchange Commission and the U.S. Attorney's Office in Manhattan, lied about her sale of nearly 4,000 shares of ImClone stock.

You'll recall Martha Stewart had sold that stock back in December, 2001, one day before the Food and Drug Administration had rejected ImClone's cancer drug which led the stock to fall down.

Now, in the indictment that had been handed up earlier this morning, the indictment does state that not only did Martha Stewart lie during these interviews, one in person, one over the phone with federal authorities but also that she had actually temporarily changed the content of a phone message kept on computer by her assistant, changed that after she learned that the authorities wanted to conduct interviews with her and wanted to find out the details of the sale of this stock.

Now, in addition, she is being charged with obstruction of justice, false statements, and securities fraud. The securities fraud charge has to do with her effort to prop up the stock of her own company, Martha Stewart Living Omnimedia because obviously attention about this very issue has hurt that stock and has dramatically affected her net worth, Martha Stewart being a huge owner of that stock.

Miles, we are expecting a press conference to get underway momentarily here in lower Manhattan at the U.S. Attorney's Office just a block away from here. And, also at 3:00 Eastern Time we're expecting Martha Stewart to actually be arraigned in the courthouse behind me -- Miles. O'BRIEN: Allan Chernoff, we are watching, of course, very closely for that news conference. The podium is still empty and as we wait for the U.S. Attorney to state his case we should tell you that Martha Stewart's attorneys were out with a statement.

And, what was interesting to me was how quickly they turned this into the allegation that the government, unable to get some big fish in the Enron mess and the WorldCom mess, have instead chosen Martha Stewart.

You sort of get a thread here of where the defense may be heading in all of this. I'm curious what your thoughts are on that one.

CHERNOFF: Yes, Miles, let's refer to that statement a little bit, as the lawyer, Robert Morvillo yesterday had said Martha Stewart will plead innocent and will go to trial. And, just a few moments ago he did put out a further statement saying, Martha Stewart has done nothing wrong and he added this turn of events can only be characterized as bizarre and raises questions about the motivation for such peculiar charges.

So, it seems quite clear that Martha Stewart's attorneys are going to argue that she is being made an example of and, keep in mind, this is not the traditional type of securities fraud charge.

But also, very importantly, as I said the bulk of the charges against Martha Stewart have to do with the cover-up, not so much the sale of the ImClone stock but the way that she covered it up, allegedly covered it up.

And also, keep in mind that the charges are leveled also against her stockbroker Peter Bacanovic. By the way, his lawyer just a little while ago put out a statement saying that he is innocent of the charges and will fight them in court.

O'BRIEN: Allan Chernoff, stay right there. I want to bring in Jeff Toobin and we'll show you the live signal coming in from inside the building you're standing in front of. There's the podium. We expect to see the U.S. Attorney very shortly gracing that podium and giving us his side of events here.

Jeff Toobin, this whole line -- I assume you've had a chance to look at this statement from the attorneys and very, you know, three or four graphs down all of a sudden we're talking about WorldCom and Enron. Is that a good tactic for an attorney, do you think, in this case?

JEFFREY TOOBIN, CNN LEGAL ANALYST: Well, I think, you know, one of the things that certainly her attorneys are worried about is this cascade of negative publicity that she's gotten, all this joy in her suffering since this investigation has been going on for almost a year now.

And, I think what they want to focus on is the fact that, you know, the Enron CEOs they're not indicted. The WorldCom people, for the most part, aren't indicted, and here you have Martha Stewart indicted for a case that netted her an extra 47,000.

They want to put that in perspective. That's not going to work in front of a jury. In fact, you're not even allowed to make that kind of argument in front of the jury. But the idea that she's singled out as a woman, potentially as a Democrat, I mean remember you're talking about a jury in Manhattan here, fairly liberal place. Some of those arguments might play pretty well.

O'BRIEN: So, what we're talking about here, obviously two tracks going on here, the court of public opinion being a very important track for somebody like Martha Stewart.

TOOBIN: Absolutely and, you know, what's so interesting about Martha Stewart, and I find this as someone who has covered her, this investigation, for quite some time now there's such a polarization of views about her. There are people who really despise her, you know, perfectionist, snob, telling people what to do. There are also tremendous numbers of people who really admire her; created a business out of nothing, entrepreneur, successful, provides tremendous good advice to people.

The jury selection in this case, and that certainly looks to be where it's heading, is going to be incredibly interesting and difficult because both sides will be trying to tease out those strong feelings that this woman attracts and get a jury that fits their interests.

O'BRIEN: Yes, it really is a case where people are never in the middle on Martha Stewart. It's one or the other.

Allan Chernoff, I want to bring you back in here for just a moment. This point that the attorneys make that she has been singled out. What has the government said heretofore about that if anything?

CHERNOFF: Well frankly, I mean they have not been talking about the case but what they have said in the past about other cases is that they certainly do not believe that somebody, simply because they're famous, should be above the law and the U.S. Attorney Jim Comey has used that exact phrase, "not above the law," in other press conferences when he has brought charges.

And also, let's go all the way back to quite a few years ago. Remember, Leona Helmsley was singled out for tax evasion and that was a case brought just before April 15. It was clearly used as an example of a high profile person to hammer home the point that somebody who's famous can not simply get away with a crime simply because they are well known and they are wealthy.

O'BRIEN: Jeff Toobin, we were talking about this very subject the other day. We were actually talking about Jayson Blair at the time, but it was the whole idea that, you know, and you've worked inside that very office, the U.S. Attorney's Office, that there is despite what is said there's only so many hours in the day and only so many ways you can make your point in the court of public opinion, which is after all part of the justice system, and thus it tends -- you tend to focus, all things being equal, on people who are in the public eye. Is that true or false?

TOOBIN: That's absolutely true. I was actually an assistant U.S. attorney across the river in Brooklyn.

O'BRIEN: OK, sorry about that.

TOOBIN: We were sort of the Avis to their Hertz. There's Jim Comey.

O'BRIEN: Let's listen to Jim Comey and I want to get your response to that after this. Let's listen in.

JAMES COMEY, U.S. ATTORNEY: ... criminal indictment against Martha Stewart and Peter Bacanovic. The indictment charges a variety of offenses related to obstruction of justice. It also charges Ms. Stewart with securities fraud.

Ms. Stewart and Mr. Bacanovic voluntarily surrendered earlier today and are expected to appear in court at about 3:00 this afternoon.

Specifically, the indictment charges them, in Count One, with conspiring together to obstruct an SEC investigation and a federal criminal investigation into the facts and circumstances surrounding the sale of ImClone shares by Ms. Stewart and others in late December of 2001, shortly before the FDA issued a decision of great consequence to the company.

This investigation -- both of these investigations began in January of last year and are continuing. And as you may know, they've resulted in a variety of charges against Samuel Waksal, formerly of ImClone.

I'm not going to review the indictment in great detail and go through the nine counts, but let me tell you in summary what it charges. Mr. Bacanovic -- in addition to the conspiracy charge, he is charged with lying to the SEC during an interview, with lying under oath during a deposition at the SEC, with endeavoring to obstruct justice in connection with these investigations.

He's also charged in a separate count with providing a bogus document to investigators. Specifically, he's charged with producing to the SEC a worksheet that he represented contained a notation that memorialized his agreement with Martha Stewart to sell her ImClone shares if the price of ImClone dropped to $60.

That worksheet did indeed reflect a conversation that Ms. Stewart and Mr. Bacanovic had in December of 2000 concerning her stock portfolio. And as the indictment alleges, it contains a long list of her stock holdings and some handwritten notations about a variety of stocks.

When submitted by Mr. Bacanovic, it also contained a notation "at 60," purporting to reflect the agreement that I just mentioned. The indictment alleges that Mr. Bacanovic added that notation in a blue pen, but in a different blue pen from the one he used for the rest of the writing and that he did that blue pen work after the investigation started as part of his scheme with Ms. Stewart to cover up the real reason for her sale of ImClone shares on December 27 of 2001. And that was the knowledge that Sam Waksal was looking to dump his ImClone shares.

Ms. Stewart -- in addition to the conspiracy charge that I've mentioned, Ms. Stewart is charged with lying to federal officials during two interviews conducted by prosecutors on my staff, FBI agents and SEC attorneys.

She's also charged, in a more general count, with endeavoring to obstruct justice during the first four months of last year. Finally, Ms. Stewart is charged with securities fraud for the detailed false statements she made to the public and, most importantly, to investors and would-be investors in her company, Martha Stewart Living Omnimedia in June of last year.

In short, the indictment alleges that, by putting out repeated detailed and fraudulent explanations for her sale of ImClone shares, she defrauded buyers and sellers of her own company's stock in an effort to stop the slide in that stock price that began when word of her involvement with ImClone shares began to leak in early June of last year.

Let me talk for a minute about what is not in the indictment. Ms. Stewart and Mr. Bacanovic have not been charged with criminal insider trading. As you will see in a moment, however, and may have already seen, the SEC has sued them for insider trading, and Mr. Carlin will talk about that in detail.

That may seem odd at first glance, but it is, in my view, the appropriate treatment of this case. And this was something that we considered very, very carefully.

At the end, I concluded that a criminal charge, a criminal insider trading charge, in these circumstances would be very nearly unprecedented. And Martha Stewart may be famous, but that's no reason for treating her differently from any other defendant, particularly where the SEC has the ability, through its civil enforcement mechanisms, to seek relief and to do justice.

For that reason, I exercised my discretion not to bring a criminal insider trading charge and, instead, to defer to the SEC.

At the same time, I should add that I feel very strongly that the SEC has done the right thing by suing Mr. Bacanovic and Ms. Stewart for their conduct in seeking the relief that they will describe, relief that is appropriate, given Ms. Stewart's trading on non-public information.

This criminal case is about lying, lying to the FBI, lying to the SEC, and lying to investors. That is conduct that will not be tolerated by anyone. Martha Stewart is being prosecuted not because of who she is, but because of what she did.

This case is also, in a way, something of a tragedy. Martha Stewart runs, Martha Stewart really is, in a sense, a company that employs hundreds of hardworking, honest people. If this and what's gone on before hurts them, those employees and those shareholders, it is indeed a tragedy. But it's a tragedy that could have been prevented if these two people had done -- only done what parents have taught their children for eons.

Even if you're in a tight spot, lying is not the way out. And lying to the FBI and lying to the SEC is a crime with profound consequences. Thank you.

Let me introduce Kevin Donavon, the assistant director in charge of the FBI.

KEVIN DONAVON, ASSISTANT DIRECTOR, FBI: Thank you, Jim. Good afternoon. The charges of conspiracy, obstruction of justice, making false statements, perjury and securities fraud announced today come as a result of a thorough and professional investigation conducted by the FBI in concert with the United States Attorney's Office and the Securities and Exchange Commission.

As the original insider trading investigation continued over the course of the past year, the investigators did what they should do and what they always do. They followed leads and went where the evidence took them. That effort has led to today's announcement.

This isn't about celebrity; it's about accountability. Individuals who violate federal statutes, especially those statutes that pertain to our markets, must be held accountable, whether they may be the chairman of the board and chief executive officer or stock broker or investor.

The strength of this nation's markets rests on the public's faith in two concepts. First, that the rule of fair play will govern, that no one will have an unfair advantage as a result of connections or inside knowledge. And second, that our law enforcement and regulatory agencies were vigorously and impartially pursue all those who seek to profit from illegally manipulating our markets.

I would like to thank our partners in this investigation, the Securities and Exchange Commission, and the United States Attorney's Office for their professionalism and expertise.

Finally, I congratulate and express my appreciation to FBI Supervisory Special Agent Tom Barton (ph) and FBI Special Agent Catherine Farmer for the perseverance and excellent work throughout this investigation.

O'BRIEN: All right. We're going to pronounce that signal temporarily disconnected and we're going to try to get the technicalities straightened out. But the good news is we can still talk to Jeff Toobin.

Jeff, it's almost as if they were hearing our conversation beforehand, addressing several times this whole issue of celebrity and trying to nip that whole discussion in the bud by saying this is just a matter of lying. TOOBIN: Well, I mean that is what obstruction of justice is and there is nothing complicated about accusing someone of looking officials in the eye and lying to them, although again one of the peculiarities about one of the counts in this case against Martha Stewart, if you read the fine print of the indictment, this was an interview by telephone which is unusual in and of itself and she's accused of lying to the FBI and the SEC on the telephone, which is -- it certainly counts legally but it's pretty peculiar.

O'BRIEN: Would that be sworn testimony by telephone? Did they tell her to raise her right hand while she's on the cell phone?

TOOBIN: No, it's actually interesting. She's not charged with perjury. Perjury is lying in a sworn statement.

O'BRIEN: OK.

TOOBIN: She's charged under a statute called making false statements to the government and those don't have to be sworn testimony. But, again, in both of the statements in which Martha Stewart is charged with lying, the statements are not transcribed. There is no transcript of what she said, again making it somewhat more difficult to prove because there may be issues of what she, in fact, did say.

O'BRIEN: You mean when the FBI calls up somebody like Martha Stewart and does an interview with her, they don't roll tape?

TOOBIN: You know, often they do but apparently they didn't this time or the indictment didn't use it because it is peculiar. One of the counts against Bacanovic there obviously is a transcript and the transcript is cited.

But the statements that she made are simply summarized in paragraph form, which is a less desirable thing to do as a prosecutor but apparently there is no transcript.

O'BRIEN: We'll have to get these guys over to Radio Shack or something.

TOOBIN: That's right.

O'BRIEN: All right, Allan Chernoff, based on what you heard so far the U.S. Attorney almost sounded like a dad scolding his son or daughter, you know. It's not right to lie and when you lie to the FBI and the SEC and to your stockholders there are very grave consequences. Put that way it's a very simple case I guess.

CHERNOFF: Yes, well the U.S. Attorney in Manhattan frequently does speak in those terms because when they do hold press conferences they are trying to send a message, a very clear message and a lesson to anybody watching that you don't want to lie, you don't want to break the law. And so, that pretty much is the type of language that we frequently do hear from the federal authorities over here.

By the way, I should also point out that the indictment does refer to an interview in person that Martha Stewart did conduct on February 4, so they're referring to false statements made both in person and over the telephone during an interview conducted in April.

O'BRIEN: But once again, we're not talking about sworn testimony here in either case, right Allan?

CHERNOFF: That appears to be the case, right. These are interviews that were conducted and, as Jeff does accurately point out, these were not written statements that were provided. This was Martha Stewart's recollection of exactly what had transpired between her and her stockbroker.

O'BRIEN: All right, Jeffrey Toobin, counselor, in matters such as this where you're relying on people's memory, notes, whatever the case may be, is there a presumption that law enforcement has it right no matter what? When does -- how does this proceed in court?

TOOBIN: Well, they are witnesses like any other witnesses and their recollections, you know, are subject to cross-examination and, you know, Martha Stewart's story has been pretty consistent here that she had this preexisting plan to sell at $60. That story, the government charges, is false.

So, it may be that there isn't much dispute about what she actually said. But, you know, as you get into the details of these statements, and one of the things, and this is something that the defense lawyers touch on in their statement, is that you know the subject matter she was under investigation for shifted over the course of these interviews.

You know, it's always better to argue about less when you are a prosecutor, to say look put aside the issue of what she said. We know exactly what she said. Here, in addition to proving that it's false, the government will have to prove what it is that she said. Can the government do it? I don't know but it's just another hurdle.

O'BRIEN: OK, so bottom line here, Jeff Toobin, first read of this and I know you're -- I don't know if you've even had a chance to read the whole thing.

TOOBIN: No, I have.

O'BRIEN: All right, good. You did the Evelyn Wood thing too. I'm proud of you. Strong case, does it appear to be a strong case?

TOOBIN: One thing in it really jumped out at me because it's new. Martha Stewart is charged with taking a phone message that she got from Peter Bacanovic and altering it on the computer and then re- authoring it back to its original form. That is something, if the government can prove it, consciousness of guilt, very bad fact for Martha Stewart.

I think that new fact puts the case perhaps in a different and much more damaging light for her. But, in her favor, it has to be pointed out she's not charged with insider trading and as the defense lawyers said in their statement look this investigation was about insider trading. They've proved her innocence.

So she has a lot to work with but it's always a bad day when you get indicted and they don't pick people out of the phone book to indict. They take great care in deciding whom to indict. I think Martha Stewart, bottom line, is at least in a world of trouble.

O'BRIEN: All right, Jeff Toobin and Allan Chernoff, we'll leave it there for now. We'll be back with you in just a little bit as the story unfolds.

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