Shareholder sues Martha Stewart

Lawsuit says domestic maven unloaded stock in her own company

Associated Press

August 22, 2002

NEW YORK - An investor in Martha Stewart's company has filed a lawsuit alleging she dumped shares of her own stock because she knew she would be investigated on suspicion of insider trading in the ImClone Systems Inc. case.

The lawsuit against Stewart was filed in U.S. District Court in Manhattan on behalf of Howard Rosen, a shareholder in Martha Stewart Living Omnimedia Inc.

It alleges that Stewart and other company executives sold about 5.3 million shares in the company worth more than $79 million -- to avoid losses they would have suffered after the ImClone scandal surfaced in June.

Stewart announced Jan. 8 that she had sold 3 million shares, or 9 percent of her stake, to ValueAct Capital Management Inc., a hedge fund, for $45 million.

The domestic design tycoon is being investigated to determine whether she sold shares of ImClone stock because she had insider information that the Food and Drug Administration was going to reject the company's application for its new colon cancer drug.

Stewart was friends with the founder of ImClone, Samuel J. Waksal, who is accused of illegally advising family members to sell their ImClone stock in December after he learned of the FDA rejection but before it was announced.

He pleaded innocent this month to charges of securities fraud, perjury, bank fraud and obstruction of justice.

Stewart has maintained she did not know about the FDA's decision before it became public.

"Being a former stockbroker, Stewart knew that the suspicious timing of her ImClone stock sales would bring public, if not legal, scrutiny," the lawsuit said.

The insider-trading lawsuit, which names Stewart and nine other defendants, seeks class-action status for investors who bought shares of Martha Stewart Omnimedia from Jan. 8 to July 24.

Steven Lipin, a spokesman for Martha Stewart Omnimedia, said the company "believes the lawsuit is without foundation, and we intend to defend it aggressively."