Risk & Compliance

Martha Stewart Settles with the SEC

Stewart to pay $195,000 and be banned for five years from acting as a director or engaging in any duties typically done by the CFO.
Stephen TaubAugust 7, 2006

Martha Stewart agreed to pay $195,000 to settle civil insider trading with the Securities and Exchange Commission stemming from her sale of ImClone Systems stock in December 2001.

The sum represents disgorgement of losses she avoided, and the maximum penalty of three times the losses she avoided.

Stewart also agreed to an injunction, a five-year bar from serving as a director of a public company. During that period, she is also prohibited from participating in financial reporting, financial disclosure, internal controls, audits, SEC filings, and monitoring compliance with the federal securities law. (Last month, Martha Stewart Living Omnimedia appointed Howard Hochhauser as CFO.)

In addition, Peter Bacanovic, Stewart’s broker at Merrill Lynch, agreed to an injunction and to pay disgorgement of commissions and a penalty totaling about $75,000.

In a separate order, the Commission previously barred Bacanovic from associating with a broker, dealer or investment adviser.

Stewart previously served a prison term for obstruction of justice stemming from an investigation into her stock trades, but was not found guilty of insider trading. The SEC’s complaint alleges that Stewart and Bacanovic violated the antifraud provisions of the federal securities laws through insider trading.

“The combination of monetary relief and future professional restrictions serve both to sanction the defendants’ insider trading and to restrict them from future positions of investor trust,” said Mark K. Schonfeld, Director of the Commission’s Northeast Regional Office, in a statement.

The SEC’s complaint, filed in June 2003, alleges that on Dec. 27, 2001, Bacanovic tipped Stewart with the nonpublic information that the then-CEO of ImClone Systems, Samuel D. Waksal, and his daughter were selling their ImClone stock. Based on this information, Stewart sold all of her ImClone stock.

The next day, ImClone announced that the FDA had refused to file ImClone’s license application for a new cancer drug, Erbitux, and ImClone’s stock price dropped 16 percent.