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Stock sale a bad thing for Martha

Jun 17, 2002  •  Post A Comment

Martha Stewart, who has traded on her wholesome reputation and ability to make life more comfortable in creative ways, is being investigated by federal prosecutors.
They are examining whether Ms. Stewart, founding chairwoman of Martha Stewart Omnimedia, had insider knowledge when she sold 3,928 shares of ImClone Systems stock on Dec. 27, the day before the Food and Drug Administration rejected a request to review the anti-cancer drug Erbitux.
Ms. Stewart, a former stockbroker, said she had a standing order to sell the stock when ImClone stock dropped below $60 a share, which it did on the date she sold. Sam Waksal, former ImClone CEO and a close friend of Ms. Stewart, told authorities June 13 that he didn’t know if anyone had consulted with Ms. Stewart before her stock sale. Mr. Waksal was arrested earlier that day by the FBI and charged with insider trading. Congressional investigators questioning Mr. Waksal said while Ms. Stewart was not the focus of their probe, they considered the timing of her ImClone stock sale to be “curious.”
Ms. Stewart issued a statement last week saying she did not receive any “nonpublic” information about ImClone before the stock sale and that the transaction was “entirely lawful.”
Martha Stewart Omnimedia senior executives said they would participate this week in a mid-year media conference review in New York City to make a case for the company’s improving financial performance.
But the damage already has been done.
Nervous Wall Street analysts and investors pushed Martha Stewart Omnimedia stock down 12 percent to close at $15 a share June 12, when Mr. Waskal was arrested. The value of Ms. Stewart’s personal holdings in her company has declined more than $120 million since questions about her ImClone stock sale arose around June 6.
On Friday, Merrill Lynch analyst Jessica Reif Cohen downgraded its intermediate-term rating on the stock to a “neutral” from a “buy,” and her long-term rating from “strong buy” to “neutral,” saying the “continued scrutiny” will continue to cause “volatility in MSO shares.”
“As Ms. Stewart is the CEO of MSO, the ongoing scrutiny may cause distraction at the very top of the company,” Ms. Cohen wrote to clients in a report.
Analysts uniformly agree that the business fundamentals and growth prospects for Ms. Stewart’s $300 million company are very good.
For now, some analysts say they are holding judgment and say they see this mostly as a “buying opportunity” for savvy investors.