August 07, 2006
Martha Stewart Settles SEC Insider Trading Charges
Posted by Christine Hurt

I think we're all aware of the trials of Martha Stewart over the past few years.  She was convicted of obstruction of justice, making false statements, and conspiracy to do the same and to commit perjury and sentenced to five months in prison and five months of house arrest.  The charges stemmed from an investigation into whether Stewart violated SEC insider trading rules by selling her ImClone stock ahead of an announcement that sent the stock price downward.  The DOJ never charged Stewart with insider trading, and the general consensus was that no prosecutor could prove that she committed insider trading, given the evidence available.  However, the SEC did file civil insider trading charges against Stewart, and as recently as May 2006, Stewart vowed to contest those charges.

Today, Stewart settled with the SEC and will pay $195,000.  Possibly more importantly, she agreed never to be a director or executive officer of a public company, including her own.  Why now?  There doesn't seem to be too much of a downside to the settlement (she had already resigned as CEO and director of Martha Stewart Living Omnimedia), and a trial would have meant that she would have been subject to deposition.  With the criminal trial over, the DOJ could have created a situation where she could not invoke the Fifth Amendment, given no plans to prosecute her on any additional charges.  That might not have been pleasant.  All in all, the settlement may just put an end to the sordid saga and let us all focus on something new.

UPDATE:  The SEC's press release specifies that the director ban and officer limitation is for a period of five years.

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