Risk Management

Martha Stewart to Pay $5M to Settle Suit

The shareholder class action settlement totals $30 million, which will be paid by Stewart, Omnimedia, and the company's insurance carrier.
Stephen GreenNovember 9, 2006

Martha Stewart is prepared to pay $5 million of her own money to settle a $30 million class action suit that accused her of lying about her sale of stock in ImClone Systems Inc. in 2001, according to a regulatory filing by Martha Stewart Living Omnimedia (MSO).

About $15 million is expected to be paid by the company, $10 million by the company’s insurers, and $5 million by Stewart, according to the filing. The company said it began negotiating a settlement in late October, and expects a hearing to consider approval of the settlement will be held in late 2006 or early 2007.

The claims in the suit relate to Stewart’s sale of 3,928 shares of ImClone Systems stock in late December 2001. The plaintiffs allege that MSO, Stewart, and seven of the company’s other present or former officers violated certain securities laws by omitting material information and making materially false and misleading statements about Stewart’s sale. As a result, MSO’s stock was inflated from January 8, 2002 to October 2, 2002 and dropped after Stewart’s alleged false statements became public, according to the filing.

The company also said it has advanced Stewart $1.3 million for legal fees and other expenses relating to the defense of the class action suit. MSO also said it advanced legal fees and expenses to other defendants in the case, which is allowed under the company’s by-laws and Delaware law because of their status as a current or former officer or director. MSO has been reimbursed by the company’s insurers for a majority of the advances.

Stewart was convicted in 2004 for lying to federal prosecutors about her sale of ImClone shares a day before a Food and Drug Administration announcement denying approval of a key ImClone product significantly knocked down the drug company’s stock. Stewart was sentenced to five months in prison and two years of supervised probation, including five months of home confinement. She was also fined $30,000.

In August, Stewart agreed to pay $195,000 to settle civil charges with the Securities and Exchange Commission and agreed to a five-year bar from serving as a director of a public company.

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