Monday, February 28, 2005

A Possible Settlement in the SEC Insider Trading Case Against Martha Stewart

The cover of the March 7 issue of Newsweek features a smiling Martha Stewart and the headline "Martha's Last Laugh" (here).  The magazine is reporting that Stewart's attorneys (she continues to reside in an FCI in West Virginia for the rest of the week) are negotiating a settlement with the SEC regarding the civil insider trading charges related to her sale of ImClone Systems stock based on information she allegedly received from her broker, Peter Bacanovic, and indirectly from former ImClone CEO Sam Waksal (who is also residing in an FCI, for quite a bit longer).  If she settles the case, it will likely involve a bar for at least some period of time from serving as a director and officer of the company, Martha Stewart Living Omnimedia, in addition to disgorgement of the loss avoided and a civil money penalty.  The dollar figures are minute -- at least for Stewart -- because the disgorgement and penalty are unlikely to be more than $250,000 (including interest and assuming a 3x penalty, which is probably on the high side), and Stewart owns 30 million shares of the company, with a current market value of over $1 billion.  Put another way, any monetary payment will be less than .025% of the value of her stock holdings in her company, so the key is what can be negotiated regarding the D&O bar.  The case was never really about the money, as both sides would likely concede. (ph)

Civil Enforcement, Martha Stewart, Securities | Permalink

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