🍳 Martha Stewart prison: 5 months for lying about her ImClone sale
Plus a $30,000 fine. She said she'd done nothing wrong and her lawyer said she'd appeal; the SEC case settled in 2006 with no admission. 🗣️
By Mr Scandal, editor at large · Desk editor Gustavs Ērkšķis-Kreicbergs · · 6 min read
CONVICTEDPhoto: David Shankbone · CC BY 3.0By the numbers
- 3y 10mfrom first to latest entry on record
- 13receipts behind this story
Martha Stewart sold all 3,928 of her ImClone Systems shares on Dec. 27, 2001, and the SEC says that sale avoided losses of $45,673. She was never criminally charged with insider trading. A federal jury in New York instead convicted her in March 2004 of obstructing justice and lying to investigators about the sale, and a judge sentenced her to five months in prison and a $30,000 fine.
What we know
- A federal jury found Stewart guilty on all four counts of obstructing justice and lying to investigators on March 5, 2004, CNN/Money reported.
- She was sentenced in July 2004 to five months in prison, two years of supervised release and a $30,000 fine, Reuters reported.
- Prosecutors brought no criminal insider trading charge against her; the SEC's separate civil case settled in August 2006, with Stewart consenting to judgments without admitting or denying the allegations.
- Under that settlement the SEC says she pays $58,062 in disgorgement and interest plus a $137,019 civil penalty, and accepts a five-year bar as a public-company director.
- Shares of her company, Martha Stewart Living Omnimedia, plunged 22.6 percent on the day of the verdict, CNN/Money reported.
Stewart said after the verdict that she had done nothing wrong, and her lawyer said she would appeal. Below: the timeline, the price list, and what her company paid. Mr Scandal has read the filings so that you need not.
The timeline
Dec. 27, 2001: The sale
The SEC's complaint alleges that broker Peter Bacanovic told his assistant, Douglas Faneuil, to tell Stewart that ImClone's chief executive, Samuel Waksal, and his daughter were selling all their shares, and that she then ordered her own 3,928 shares sold. The next day ImClone announced the FDA would not accept its Erbitux application for filing, and by the close of the next trading day the stock had fallen 16% to $46. Stewart denied the accusations and said she had arranged earlier to sell if the price fell below $60, the BBC reported. The SEC alleges that explanation was a fabricated alibi.
See the receipt (opens in a new tab)October 2002: She leaves the stock exchange board
Stewart resigned from the board of the New York Stock Exchange less than four months after taking the post, saying she did not want the media attention "to distract from the important work" of the exchange. The BBC reported the move came after Faneuil pleaded guilty to a misdemeanor and agreed to testify against her. By then, the BBC said, shares of Martha Stewart Living Omnimedia had fallen 65% since investors first got wind of the scandal.
See the receipt (opens in a new tab)June 4, 2003: The SEC sues and prosecutors indict
The SEC filed civil securities fraud charges against Stewart and Bacanovic, and the U.S. attorney in Manhattan obtained an indictment over their statements about the trades. Neither document is a finding; both are allegations that a jury would test the following spring. CNN/Money later reported that Stewart quit as chairman and chief executive of her company after the indictment but stayed on as chief creative officer.
See the receipt (opens in a new tab)March 5, 2004: The verdict
After a trial that began Jan. 27 and ran five weeks, the jury found Stewart guilty on all four counts of obstructing justice and lying to investigators. A week earlier, Judge Miriam Goldman Cedarbaum had thrown out the securities fraud count, which CNN/Money said accused Stewart of using her own claims of innocence to mislead investors in her company. Neither Stewart nor Bacanovic testified. Her company's stock rallied early that day and then plunged 22.6 percent, CNN/Money reported.
See the receipt (opens in a new tab)"I am obviously distressed by the jury's verdict but I take comfort in knowing that I have done nothing wrong"
Martha Stewart, in a statement posted on her website, as reported by CNN/Money, March 5, 2004
July 2004: Five months, two years and a $30,000 fine
The judge sentenced Stewart to five months in prison, two years of supervised release and a fine of $30,000, Reuters reported. She could have received a maximum of 16 months. Shares of her company rose 20 per cent to $10.37 that day. Her surrender was delayed to allow her lawyers to appeal.
See the receipt (opens in a new tab)Oct. 8, 2004: Camp Alderson
The Bureau of Prisons assigned her to the Federal Prison Camp in Alderson, West Virginia, a minimum-security women's facility. The New York Times reported that a Justice Department spokesman said Danbury, Connecticut, was ruled out because the press could stake it out too easily, and Hurricane Ivan had filled her second choice in Florida. CNN/Money reported she chose to start serving before her appeal was heard. The Bureau of Prisons says she arrived at about 6:15 a.m. on Oct. 8, 2004.
See the receipt (opens in a new tab)March 4, 2005: Out at 12:30 a.m.
The Bureau of Prisons says Stewart was released at 12:30 a.m. on March 4, 2005, to complete the rest of her sentence: a two-year supervised release, five months of it in home confinement. CNN/Money reported she then toured her Bedford, N.Y., estate and that her company provided a flatbed truck so images of her boarding a plane could be broadcast. In a statement she called the experience "life altering and life affirming."
See the receipt (opens in a new tab)Aug. 7, 2006: The SEC settles
The SEC announced an agreement to settle its insider trading case against Stewart and Bacanovic. Stewart agreed to pay $45,673 in disgorgement, the losses the SEC says she avoided, plus $12,389 in prejudgment interest, for a total of $58,062, and a civil penalty of $137,019, three times the loss avoided. She also agreed to a five-year bar from serving as a director of a public company and a five-year limit on her role as an officer. Both defendants consented to the judgments without admitting or denying the allegations, and the SEC said it was filing the proposed judgments for the court's approval.
See the receipt (opens in a new tab)The price list
Two bodies set the money. A judge set the criminal fine in 2004; the SEC's civil settlement set the rest in 2006. Bacanovic's civil penalty is included for contrast.
| What | Amount | Set by |
|---|---|---|
| Criminal fine | $30,000 | Federal judge, July 2004 sentence |
| Disgorgement of losses the SEC says she avoided | $45,673 | SEC settlement, Aug. 2006 |
| Prejudgment interest | $12,389 | SEC settlement, Aug. 2006 |
| Civil penalty, three times the loss avoided | $137,019 | SEC settlement, Aug. 2006 |
| Bacanovic's civil penalty, for contrast | $75,000 | SEC settlement, Aug. 2006 |
What the company lost
Martha Stewart Living Omnimedia took the first hit. A New York Post column in May 2004 recalled that when the scandal erupted in June 2002 the company had just reported quarterly revenues of $68.7 million and $2.9 million in net income, and predicted that with Stewart headed for prison the company "will be lucky to survive as even a shadow of its former self." The company said at the time of the verdict that it would survive, CNN/Money reported.
The books after the sentence are odder. CNN/Money reported in March 2005 that the company had posted a second straight annual loss after losing advertisers and a television show, yet its stock had more than quadrupled since the day she was sentenced. In February 2006 the company reported fourth-quarter net income of $2.95 million, against a loss of $7.33 million a year earlier, when its founder was serving her sentence. For the full year it reported a loss of $75.8 million, against $59.6 million the year before, the Associated Press reported.
Her own paperwork was drawn with care. The New York Times, citing a filing with the SEC, reported in September 2004 that a five-year contract signed about two weeks earlier paid her a base salary of $900,000 a year, with no salary during the prison term but pay during the five months of home confinement.
That is the arithmetic. The SEC says the trade saved her $45,673; the civil penalty it agreed to was $137,019, with a $30,000 fine from a judge besides. Stewart's own position in the settlement was that she neither admitted nor denied. Make of that what you will.
Quick quiz · 3 questions
The Martha Stewart file
- Filed
SEC announced settlement; proposed judgments filed: $58,062 disgorgement and interest, $137,019 penalty, no admission. This story
- Reported
Released from Federal Prison Camp Alderson to complete the rest of her sentence, per the Bureau of Prisons. This story
- Ruled
Sentenced to five months in prison, two years of supervised release and a $30,000 fine. This story
- Ruled
Federal jury found her guilty on four counts of obstructing justice and lying to investigators. This story
- Filed
SEC filed a civil complaint alleging insider trading and false statements over her ImClone stock sale. This story
- Reported
Resigned from the NYSE board, saying media attention should not distract from the exchange's work. This story
On file: The Martha Stewart file · The ImClone Systems file · The Martha Stewart Living Omnimedia file
The Ledger
On the record
- A federal jury convicted Stewart in March 2004 on four counts of obstruction and false statements; she was sentenced to five months in prison, two years of supervised release and a $30,000 fine.
- The SEC settlement announced in August 2006 was consented to without admitting or denying the allegations, with $58,062 in disgorgement and interest and a $137,019 penalty.
Still rumour
- Court approval of the SEC judgments and the outcome of her appeal are not stated in the documents read, beyond a 2006 New York Times note that a request for a new trial was denied by an appeals court.
- Stewart said after the verdict that she had done nothing wrong; the documents read carry no later statement from her on the case.
- Size of the loss avoided differs by outlet: the SEC says $45,673, while CNN/Money at the verdict said about $51,000.
That's the record. The rest is rumour. - Mr Scandal
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