New York, NY, Oct. 22--With the securities fraud investigation into Martha Stewart picking up steam, analysts say her namesake company, Martha Stewart Living Omnimedia is under increasing pressure to plan for a future without its chairwoman and chief executive.
In a major step toward the filing of formal charges, the Securities and Exchange Commission has presented Stewart''s legal team with its evidence of her allegedly improper sale of ImClone Systems stock.
If Stewart was forced to step down‹a possibility, according to legal analysts‹it would be a tough but not catastrophic blow to her company.
"Her most important role in that company is as their spokesperson, brand and television personality,² said Adams, Harkness & Hill analyst Laura Richardson. ³Replacing her in those capabilities would be a lot more difficult than replacing her as chairwoman and CEO."
Martha Stewart Living, which denied reports in September that it was looking for a new CEO, declined to comment on any possible contingency plans. Stewart''s lawyer and personal representative were not available for comment.
Stewart, and her company, have far more to lose from the criminal investigation into her stock trade by the U.S. Department of Justice.
"There¹s a 70% to 80% likelihood of a criminal case in my view," said Seth Taube, a former SEC enforcement branch chief in New York and a former assistant U.S. attorney. "Traditionally, if the SEC came first, the criminal case was not going to be brought. But in the last year since Enron the standard has been just the reverse.²
The potential of a prison sentence would be a nightmare for Stewart, and for Martha Stewart Living.
"That is close to the worst case scenario," said Richardson. In prison, "she couldn''t actually show up on the TV set, and that would have implications for the brand name and consumer''s and businesses'' willingness to associate with the company."
On the civil investigation, the SEC could file charges within a few weeks based on the progression of a typical investigation, said Thomas Sjoblom, former assistant chief litigation counsel at the SEC and now a partner with the law firm Chadbourne & Parke.
Any settlement talks would likely include a clause that could ban Stewart from serving as an officer or director of a public company. The practice became more common in the 1990s and is increasingly prevalent in the current scandal ridden business and regulatory environment.
"My read on it is they are going to try to treat her as fairly as everyone else, but you have the added feature of someone with so much notoriety and popularity," said Sjoblom. "Those are going be tough negotiations. It''s her company, she put it together, and to take that away from her is not going to be easy."
