November 9, 2006
Martha Stewart Settles the Final Case
The final piece of litigation related to Martha Stewart's ill-fated sale of a little over 3,000 shares of ImClone Systems stock in December 2001 is about to be settled. The government believed her broker had been tipped by Dr. Samuel Waksal, then CEO of ImClone who is serving a seven-year sentence for insider trading and tax evasion related to his own sales of the company's stock. Stewart's infamous trade, which avoided the loss of a bit less than $50,000 when ImClone announced an adverse FDA action on its primary drug, resulted in an investigation by the SEC and U.S. Attorney's Office that led to her indictment and conviction on conspiracy, false statement, and perjury charges. She served about ten months in a federal prison for the convictions. While she was not prosecuted criminally for insider trading, the SEC filed a civil securities fraud action that was settled in August 2006 with disgorgement of the loss avoided, a modest penalty, and a five-year bar on Stewart serving as a director of a public company, most importantly the corporation she controls, Martha Stewart Living Omnimedia, Inc. According to the company's 10-Q (here), the last case is a putative class action by purchasers of stock during 2002 when Stewart denied she traded on inside information that was allegedly misleading and inflated the company's stock price. The 10-Q states:
In late October 2006, the parties began negotiating an agreement to settle the Class Action for $30 million, approximately $15 million of which is expected to be paid by the Company, approximately $10 million of which is expected to be paid by the Company’s insurers, and approximately $5 million of which is expected to be paid by Ms. Stewart. The settlement is subject to the negotiation and execution of definitive settlement documents and to Court approval. The Company anticipates that a hearing to consider approval of the settlement will be held in late 2006 or early 2007.
While Stewart will pay $5 million of the total settlement amount, her compensation in 2005 was over $2 million, and her stock holdings in the company are worth well over $600 million. It is hard to believe this whole affair began almost five years ago, and cost so much in time and money. At this point, the Blog should retire the category "Martha Stewart." (ph)
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