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Year
2003
Month Day
June 04

Martha Stewart indicted for securities fraud and obstruction of justice

For domestic diva Martha Stewart, known for her “good things” tips and tricks, things turn very badly when a federal grand jury serves her and her former stock broker a nine-count indictment, including charges of obstruction of justice, securities fraud, conspiracy and making false statements.

Stewart, CEO and chairwoman of Martha Stewart Living Omnimedia Inc., and her former Merrill Lynch broker, Peter Bacanavic, were handed the indictments following an investigation of her sale of ImClone Systems stock. Bacanavic was charged with obstruction, conspiracy, making false statements and perjury.

Then 61-year-old Stewart resigned almost immediately from her position once the charges were made (she stayed on the board and as chief creative officer). But she and Bacanavic both pleaded not guilty to the indictments brought by former Manhattan U.S. Attorney and future FBI Director James Comey.

Prosecutors charged that in 2001 Stewart was tipped off by Bacanovic that ImClone’s stock was going to drop after the company’s owner received inside information that the Food and Drug Administration was going to decline to review an application for the company’s cancer drug. Stewart shed her nearly 4,000 ImClone shares—worth $230,000—one day before the FDA decision was announced.

At trial, a federal jury found Stewart, who maintained her innocence, guilty of conspiracy, obstruction and two counts of lying to federal investigators (a securities fraud charge was dismissed) on March 5, 2004. Bacanavic was found guilty on four of his five charges.

An appeal for a new trial was denied, and Stewart was sentenced to five months at a West Virginia minimum-security federal prison. She served out the sentence in 2004, and then served five months of house arrest and two years of probation. Stewart resigned from her company’s board, keeping the title of founding editorial director.

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