Martha Stewart Quits NYSE BoardOct 4, 2002 | AP Martha Stewart, dogged by questions about her role in the ImClone Systems Inc. insider trading scandal, has resigned from the New York Stock Exchange's board of directors.
The decorating entrepreneur announced her departure Thursday, a day after an assistant to her stockbroker agreed to help prosecutors investigating Stewart's sale of ImClone stock before the pharmaceutical company's shares plunged.
"I did not want the media attention currently surrounding me to distract from the important work of the NYSE and thus felt it was appropriate to resign," Stewart said in a statement after she sent her resignation letter to Dick Grasso, the NYSE's chairman and chief executive.
Grasso said the board would "miss Ms. Stewart's counsel and insight," and said her departure was her own.
"We are saddened to lose Martha Stewart, who has built a brand and a company admired around the world," he said.
On Wednesday, an assistant at Merrill Lynch to Stewart's broker Peter Bacanovic pleaded guilty to a misdemeanor charge of taking a payoff to keep quiet about Stewart's sale of 4,000 shares of ImClone. As part of his plea, Douglas Faneuil agreed to testify against Stewart and others who might be charged in connection with the stock scandal.
Congressional investigators have asked the Justice Department to begin a criminal investigation into whether Stewart knowingly lied to lawmakers about her stock sale.
She sold her ImClone shares in December, a day before the stock started plunging on news that the Food and Drug Administration would not review ImClone's application for its highly touted cancer drug, Erbitux. The FDA decision meant Erbitux's approval would be significantly delayed, and the company's fortunes relied on Erbitux.
Stewart, who has denied any wrongdoing, has said she had a standing order to sell the ImClone shares if they fell below $60.
Faneuil initially backed Stewart's account, but told a judge in his plea that he had withheld the truth from SEC investigators and FBI agents when first interviewed about the trading activity.
"Given the allegations floating around about Stewart, it becomes problematic and more difficult for her to sit on the board of the New York Stock Exchange," said Charles Elson, director of the Center for Corporate Governance at the University of Delaware. "When you sit on the board of the exchange you are responsible for holding up the standards of the exchange."
Stewart is a friend of ImClone co-founder and former chief executive Sam Waksal. Waksal was indicted in August for allegedly telling family members to dump millions of dollars worth of ImClone stock before the bad news about Erbitux hit the markets. He has pleaded innocent.
Court papers say that on Dec. 27, Faneuil's boss let the "tippee" know Waksal was trying to sell all of the ImClone stock he held at Merrill Lynch.
"The tippee then sold all of the tippee's shares of ImClone stock, approximately 3,928 shares, yielding proceeds of approximately $228,000," the court papers said.
Experts said Faneuil's plea signals prosecutors' intention to pursue a case against Stewart.
"They are really ratcheting up the pressure," said Robert Mintz, a former federal prosecutor. "Prosecutors wouldn't have made the deal with Faneuil if they didn't think it would lead them right to Stewart's door."
In exchange for stonewalling investigators, court papers said, Faneuil was offered an extra week of vacation and a free airline ticket, and was given an increase in his commission rate.
"I did not truthfully reveal everything I knew concerning the actions of my immediate supervisor ... and the true reasons for the `tippee's' sale of ImClone stock," Faneuil said in court Wednesday.
Documents filed in Manhattan federal court did not identify the "tippee" who received the insider information.
Faneuil's lawyer, Marvin Pickholz, asked outside court if the "tippee" was Stewart, answered: "If you guys read this information and you can't fill in the blanks, you're in serious trouble."
Shares of Martha Stewart Living Omnimedia Inc. have fallen more than 65 percent since her alleged connection to the ImClone trading scandal was first reported in early June.
Stewart's announcement helped push the shares down even further Thursday, falling 59 cents, or nearly 9 percent, to close at $6.21 on the NYSE.
Stewart, one of 27 members of the NYSE's board of directors, had joined in June. Her term was to expire next year.