NEW: Martha Stewart charged with Illegal Insider Trading
June 4, 2003
Another American icon has bit the dust. On June 4, the Securities and Exchange Commission (SEC) filed securities fraud charges against Martha Stewart and her former stockbroker, Peter Bacanovic.
The complaint, filed in federal court in Manhattan, alleges that Stewart,whose company carries her name, committed illegal insider trading when she sold stock in a biopharmaceutical company, ImClone Systems, Inc., on Dec. 27, 2001, after receiving an unlawful tip from Bacanovic, at the time a broker with Merrill Lynch, Pierce, Fenner & Smith Incorporated.
The Commission further alleges that Stewart and Bacanovic subsequently created an alibi for Stewart's ImClone sales and concealed important facts during SEC and criminal investigations into her trades. In a separate action, the United States Attorney for the Southern District of New York has obtained an indictment charging Stewart and Bacanovic criminally for their false statements concerning Stewart's ImClone trades.
The Commission wants Stewart and Bacanovic to disgorge the losses they avoided through their insider trades. By selling when she did, Stewart avoided losses of $45,673. The SEC also wants an order barring Stewart from acting as a director of he company or any public company. Stewart has been Chairman and Chief Executive Officer of Martha Stewart Living Omnimedia, Inc.
Stephen M. Cutler, the SEC's Director of Enforcement, said: "It is fundamentally unfair for someone to have an edge on the market just because she has a stockbroker who is willing to break the rules and give her an illegal tip. It's worse still when the individual engaging in the insider trading is the Chairman and CEO of a public company."
The Commission alleges that Stewart and Bacanovic went on to lie when the Commission staff and criminal authorities questioned them about the facts surrounding Stewart's sale of ImClone stock. Stewart and Bacanovic fabricated an alibi for Stewart's trades, stating that she sold her ImClone stock because she and Bacanovic had decided earlier that she would sell if ImClone's stock price fell below $60 per share. In addition, Stewart told the government that she did not recall anyone telling her that day that any of the Waksals were selling their ImClone stock.