Martha indicted

NEW YORK - Martha Stewart was indicted Wednesday on charges of securities fraud and obstruction of justice arising from her controversial sale of ImClone Systems Inc. stock.

A federal grand jury in New York handed up a nine-count indictment that included charges of securities fraud and obstruction of justice. Stewart's former broker, Peter Baconavic, was also indicted.

Talks between Stewart and prosecutors broke down when she would not agree to plea to any charge that carried the potential for jail time, the Wall Street Journal reported Wednesday morning.

Martha Stewart Living Omnimedia Inc. warned of the indictments on Tuesday. She also faces a related civil action by the Securities and Exchange Commission.

Stewart, chairman and CEO of the company and owner of 61 percent of its shares, did not attend the company's annual shareholders' meeting Tuesday afternoon, though she did address the meeting through a videotape made Tuesday morning.

After the meeting, company director Arthur Martinez, a former CEO of Sears Roebuck & Co., "categorically" denied reports that Stewart had resigned from the company. He voiced support for the company's embattled chief, and said a number of shareholders also voiced support.

"The company has many assets. The assets include our brands, the resource that is Martha Stewart, our extraordinary strong financial position," he said. "We expressed our confidence as a group, both the board and the management team, in moving the company forward."

Stewart maintains her innocence

Robert Morvillo, Stewart's attorney, said Tuesday she would "declare her innocence and proceed to trial." A federal law enforcement official familiar with the case told CNNfn an indictment could come "very soon."

After falling about 15 percent Tuesday, Martha Stewart (MSO: Research, Estimates) shares fell another one percent in early trading Wednesday.

Officials at the U.S. Attorney's office in New York said they had no announcement to make and a company spokesman declined to elaborate. The Justice Department declined to comment.

But Stewart's sale of nearly 4,000 shares of ImClone Systems Inc. has been the focus of investigators trying to determine if Stewart knew that the Food and Drug Administration was about to reject ImClone's application for a new cancer drug.

The Dec. 28, 2001, FDA rejection, the day after Stewart's sale, sent the stock of the small biotechnology company tumbling 75 percent during the next month. Late last year, ex-ImClone CEO Samuel Waksal, a friend of Stewart's, pleaded guilty to insider trading charges.

"The best case scenario -- that investigations would conclude without resulting in formal charges -- is apparently no longer a possible outcome," Allisa Goldwasser, who covers Martha Stewart Living for investment bank William Blair & Co., told clients Tuesday.

The ImClone sale netted multimillionaire Stewart about $229,000, sparked investigations by Congress and the Justice Department, and sent the stock of her company into a swoon.

"Martha Stewart Living Omnimedia and its board of directors have been planning for a number of possible contingencies, are evaluating the current situation and will take action as appropriate," the company said in a statement. A spokeswoman would not elaborate on what action the company might take or when its board members might meet.

Martha Stewart Living's initial public offering during the last gasp of the 1990s bull market made Stewart one of the nation's wealthiest people. Forbes magazine, which compiles a list of the wealthiest Americans, removed her from the list last year as her company's stock slid about 40 percent.

Stewart's employment agreement says the company can fire her in the event of her "conviction of a felony or gross misconduct, which in either case results in material and demonstrable damage to our business or reputation." If the company fires her without cause, it would have to pay her millions in severance and provide health and other benefits for years.