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Reports: Martha May Face Charges

Oct 21, 2002 | CNN/Money

Federal regulators reportedly are set to recommend filing fraud charges against Martha Stewart, the home decorating entrepreneur who has been under scrutiny for possible insider-trading violations related to her sale of ImClone Systems stock.

The Wall Street Journal and the Financial Times, citing people familiar with the matter, said staff at the Securities and Exchange Commission have told Stewart the agency plans to recommend filing civil securities fraud charges against her in connection with her controversial stock sale last December.

Both publications' online editions Monday said Stewart received a so-called Wells Notice, which gives her time to respond to the allegations. A lawyer for Ms. Stewart declined to comment, the Journal said. The FT reported that the SEC also had no comment.

Stewart sold nearly 4,000 ImClone shares on Dec. 27, just before the company's application for the cancer drug Erbitux ran into a regulatory hurdle that sent ImClone shares tumbling. Stewart has denied receiving any insider information ahead of the sale, saying she had a longstanding agreement with her broker to unload ImClone when it fell below $60.

Before passing the matter on to the Justice Department, congressional investigators said the that the various accounts of what happened from Stewart, her brokers and Sam Waksal, the former ImClone CEO and a friend of Stewart, never added up.

The questions have taken a toll on the company she heads. Shares of Martha Stewart Living are down 54 percent this year.

Pressure mounted against Stewart after Douglas Faneuil, former assistant to Stewart's broker at Merrill Lynch, pleaded guilty earlier this month to misdemeanor charges of accepting perks to keep silent about an alleged inside stock tip given to Stewart. Two weeks later, Sam Waksal pleaded guilty to several charges in the insider-trading scheme involving ImClone.

Separately, the US Attorney is seeking the forfeiture of three accounts held by Jack and Sabina Waksal, parents of ImClone founder Sam Waksal and one bank account of Waksal's daughter Aliza.

The request was made in a civil complaint filed in a Manhattan federal court on Monday. The accounts, which hold nearly $10 million, have been frozen since August.

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