Stockholder Sues Martha Stewart Over Insider Trading Scandal

A stockholder in Martha Stewart's fine living empire has sued the domesticity diva, saying she breached her duties to her investors by becoming involved in the ImClone Systems insider trading scandal. The suit by Conrad K. Hahn of North Port, Fla., said that Stewart "knows or should know" that her corporation's success is inextricably linked to Stewart's personal reputation for quality and integrity.

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A stockholder in Martha Stewart’s fine living empire has sued the domesticity diva, saying she breached her duties to her investors by becoming involved in the ImClone Systems insider trading scandal. The suit by Conrad K. Hahn, an investor in Martha Stewart Living Omnimedia Inc., seeks unspecified damages and is believed to be the first against Stewart for alleged damage to her company. Hahn, of North Port, Fla., said in court papers filed late Thursday that Stewart “knows or should know” that her corporation’s success is inextricably linked to Stewart’s personal reputation for quality and integrity. “Any actions taken by Stewart that reflect negatively on her will predictably have a negative effect on MSO,” the suit said. Elizabeth Estroff, a spokeswoman for MSO, said, “We haven’t seen a copy of the complaint, therefore we cannot comment.” Stewart, an ImClone investor, sold almost 4,000 shares in the biotech company a day before the Food and Drug Administration announced in December it would not approve the firm’s experimental cancer drug Erbitux. That announcement caused ImClone’s stock price to fall. In June, court papers note, securities officials began investigating Stewart’s sale of her shares. At issue was what she knew about the FDA’s impending announcement. Stewart, 61, was a friend of former ImClone CEO Samuel Waksal, who was arrested June 12 on charges of trying to sell his ImClone shares and tipping off family members after learning the FDA would reject Erbitux. Stewart has said she had a stop-loss order at Merrill Lynch, the brokerage where she once worked, to sell ImClone if it fell to $60 a share. Hahn’s court papers note that no record of such an order has been found. Since the probe of Stewart’s trades began in June, stock in her corporation had plunged by about half. On Friday, MSO stock traded at $8.55 a share, down from $20.93 on March 18. “During June 2002, substantial and steady news has been published almost daily about Stewart’s involvement in the ImClone insider trading scandal,” say Hahn’s papers, filed Thursday in New York state court in Manhattan. Hahn, whose papers do not say how many shares of MSO he owns or what they are worth, is asking that his lawsuit be certified as a class action to represent all stockholders in Stewart’s corporation. Copyright 2002 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.

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