The Securities and Exchange Commission (SEC) has announced that an agreement to settle insider trading charges against Martha Stewart and Peter Bacanovic, relating to Stewart’s December 2001 sale of ImClone Systems stock, has been reached.
"This settlement achieves everything we sought to accomplish in pursuing this case,” Mark K. Schonfeld, Director of the Commission's Northeast Regional Office, said in a prepared statement. “The combination of monetary relief and future professional restrictions serve both to sanction the defendants' insider trading and to restrict them from future positions of investor trust."
The SEC's complaint, filed in June 2003, alleges that on Dec. 27, 2001, Bacanovic, then a broker, illegally tipped his client, Stewart, with the nonpublic information that the then-CEO of ImClone Systems, Samuel D. Waksal, and his daughter were selling their ImClone stock. Based on this information, Stewart sold all of her ImClone stock. The next day, ImClone announced that the FDA had refused to file ImClone's license application for a new cancer drug, Erbitux, and ImClone's stock price dropped 16%. The complaint alleges that Stewart and Bacanovic violated the antifraud provisions of the federal securities laws.
Stewart and Bacanovic have agreed to settle the SEC's enforcement action by consenting to final judgments that impose permanent injunctions against future violations of the antifraud provisions of the federal securities laws and imposing the following relief against each defendant:
- Disgorgement of $45,673, representing losses avoided from her insider trading, plus prejudgment interest of $12,389, for a total of $58,062;
- A maximum civil penalty of $137,019, representing three times the amount of losses avoided;
- A five year bar from serving as a director of a public company; and
- A five year limitation on her service as an officer or employee of a public company. During that period, she will be prohibited from participating in certain activities, including financial reporting, financial disclosure, internal controls, audits, SEC filings, and monitoring compliance with the federal securities laws.
- Disgorgement of $510, representing the commissions he earned as a result of Stewart's ImClone stock sale, plus prejudgment interest of $135, for a total of $645; and
- A civil penalty of $75,000.
The SEC is filing the proposed final judgments with the U.S. District Court in Manhattan for consideration and approval. The defendants consented to the judgments without admitting or denying the allegations in the complaint.
The Commission appreciates the assistance of the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation in the investigation of this matter.