NEW YORK - Maybe they should rename the company
Living Omnimedia.
With the securities fraud investigation into Martha Stewart
picking up steam, analysts say her namesake company, Martha
Stewart Living Omnimedia Inc., 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, according to a source close to the
investigation.
If the decorating, cooking and gardening guru was forced to
step down -- a very plausible 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. Replacing her
in those capabilities would be a lot more difficult than
replacing her as chairwoman and CEO," said Adams, Harkness &
Hill analyst Laura Richardson.
That sentiment was echoed by Rachel Kennedy, a faithful
viewer of Stewart's cooking show on The Food Network, and an
infrequent reader of Martha Stewart Living magazine.
"I would still watch. I don't care about her morality, but
I do think she has good recipes," said Kennedy, who works in
Washington, D.C. at an online consulting firm.
"I occasionally buy her magazine knowing full well she is
an awful person," Kennedy added. "Actually, I'm having a dinner
party tonight using four of her recipes -- how awful is that?"
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.
HANDICAPPING MARTHA'S CHANCES
Stewart, and her company, have far more to lose from the
criminal investigation into her stock trade by the U.S.
Department of Justice.
"(There is a) 70 to 80 percent 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," said Taube, now with
the law firm McCarter and English.
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.
The commission sent a so-called Wells notice to Stewart
last month, according to a source, detailing its charges
against her and giving her legal team time to respond.
"It's saying, 'We want to hear from you, give us your best
shot,'" said Stephen Rinehart, a defense lawyer at Jenkens &
Gilchrist Parker Chapin who specializes in securities law.
"More often than not, the proceeding goes forward."
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."
Shares of the company closed up $1.00 at $8.50 on Tuesday
after earlier climbing as high as $9.00 on the New York Stock
Exchange, suggesting that investors may have already priced the
expectation of Stewart's departure -- from the executive suite,
at least -- into the stock.
"There are a lot of talented executives out there, and also
within the company, that can fill those roles (of chairman and
CEO)," said Richardson.