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Martha asks for help with legal bills
Martha Stewart Living Omnimedia says imprisoned founder has filed for $3.7M to cover costs.
November 10, 2004: 3:24 PM EST

NEW YORK (CNN/Money) - Martha Stewart, serving a five-month prison term in West Virginia, has spent millions of dollars on lawyers in the three years since government prosecutors began investigating the personal stock sales that led to her criminal conviction.

Should Martha Stewart's company be paying $3.7 million for her legal bills?

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Now she wants a little help with her legal bills.

On Tuesday her company, Martha Stewart Living Omnimedia, said in a filing that Stewart wants the company to reimburse her $3.7 million. That amount -- just a sliver of her total legal bill --is the one that she might be entitled to recover under law.

The request centers on the government's claim, as part of their broader criminal case against Stewart, that she attempted to influence the price of Martha Stewart Living Omnimedia as it began its downward spiral in response to her worsening legal woes.

U.S. District Court Judge Miriam Goldman Cedarbaum, who oversaw the criminal case, threw out the charge before Stewart's trial ended in March.

Most public companies allow their officers and directors to recover legal costs they incur while defending themselves from court claims brought against them in their official company roles.

Stewart apparently believes that the stock manipulation charge was based on actions she took while serving as chairman and CEO of Martha Stewart Living. The costs of that defense, she claims, came to $3.7 million.

Legal experts said Wednesday that public company officers and directors frequently seek reimbursement for their legal costs. But they also said that doesn't mean the requests always succeed.

In Stewart's case, the Martha Stewart Living filing said Stewart and the company agreed in principle to submit the question of whether she is entitled to the money to an independent expert who will advise the company on whether it is legally obligated to pay Stewart the money she seeks.

If she is entitled to reimbursement, the company said, it believes the payment will be covered under its directors' and officers' insurance coverage, and will not come out of company funds.

Not a slam-dunk

Stewart's request may not work, legal experts said Wednesday.

The key question is whether Stewart was, in fact, acting in her role as a Martha Stewart Living officer when she publicly declared her innnocence. Prosecutors viewed those claims as a ploy to mislead investors in Martha Stewart Living. MSO (Research) stock started sinking after questions about Stewart's sale of ImClone shares surfaced in 2002.

"I think there could be arguments on both sides of this," said Carl Metzger, a partner in the Boston law firm of Testa, Hurwitz & Thibeault.

The case could be made, Metzger explained, that the securities fraud charge that Judge Cedarbaum dismissed was not based on her official company role but on her position as Martha Stewart Living's biggest shareholder. Hence, Stewart stood personally to benefit if she succeeded in halting Martha Stewart Living's stock slide.

Or, the company could deny her request on the grounds that the securities fraud charge was "part and parcel" of the criminal conduct for which Stewart was later convicted, said John Hughes of the law firm Edwards & Angell.

And even if the company signs off on Stewart's claim, there's the possibility that its insurance carrier will reject it.

Stewart's bid for reimbursement could ultimately wind up in court.

The request, however, has no impact on her underlying conviction on criminal charges that she lied to investigators and obstructed justice during a probe of her sale of ImClone Systems stock in December 2001, before damaging news about that company became public.

Stewart began serving last month a five-month sentence at a minimum security federal prison in West Virginia, although she continues to appeal her convictions.

She is due to serve five months of home detention once she is released from prison. She has said she plans to return to the company after her release.

Stewart, 63, gave up her titles as chairman and CEO of her company after her conviction, but she is still listed as chief editorial and media director.

Meanwhile, Martha Stewart Living Omnimedia has opened a two-pronged strategy as its financial losses have mounted. It has invested in new businesses, including a yoga and a food magazine, that do not carry the Martha Stewart name while holding into its flagship Martha Stewart Living magazine and other eponymous products in the hopes these products will rebound upon Stewart's return.

Company officials recently expressed optimism that its business will turn around once Stewart gets out of prison. Some company watchers remain skeptical, however, noting that the short-term outlook remains grim.

Shares of Martha Stewart Living Omnimedia (Research) were up nearly three percent, to $18.74 apiece, in New York Stock Exchange trading Wednesday.  Top of page

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