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SEC Staff Seen Set To Urge Stewart Charges

Oct 22, 2002 | The Boston Globe Media and housewares executive Martha Stewart was reported yesterday to have moved a step closer to facing civil charges of insider stock trading, in what could become one of the marquee punishments in the federal government's crackdown on Wall Street corruption.

The Wall Street Journal, citing unidentified sources, reported late yesterday in its online edition that the enforcement staff of the Securities and Exchange Commission has notified Stewart that it intends to urge civil charges be brought against her over her sale of $227,000 worth of stock in ImClone Systems Inc. in December, a day before shares plunged on bad news about an anticancer drug it was developing.

The full commission must vote to approve charging Stewart. Recipients of so-called Wells Notices, the type of notification the Journal said Stewart has received, are given time to respond to the allegations and can try to persuade the commission to drop the charges or agree to a settlement.

Neither the SEC nor Stewart had any comment. Stewart, founder and chief executive of Martha Stewart Living Omnimedia Inc., has denied she got tipped off to sell her shares in ImClone. Family members of former ImClone chief executive Sam Waksal, a close friend of Stewart's, also heavily sold shares in ImClone last December. ImClone shares plunged after it announced on Dec. 28 that the US Food and Drug Administration had rejected one of its most promising cancer-fighting drugs, Erbitux.

Waksal last week pleaded guilty to six of 13 charges brought against him, including insider-trading charges. Waksal admitted he urged his 28-year-old daughter, Aliza, to sell nearly $2.5 million of ImClone stock on Dec. 26, but in his plea said he did not tell her why she should sell.

Mark Pearlstein, a former top federal prosecutor in Boston who is now a partner with McDermott, Will & Emery, said, ''This may well be related to a possible indictment of Martha Stewart, but it's entirely distinct. It would surprise me if the SEC was to get out too far in front of the US attorney's office.''

Pearlstein added that ''if they believe she made false statements to the SEC, that would be a factor that would tend to militate strongly in favor of prosecution.''

Stewart has said she had a standing order with her broker at Merrill Lynch to sell her 3,928 shares of ImClone if they ever fell below $60. Earlier this month, Douglas Faneuil, a Newton native who worked as an assistant to Stewart broker Peter Bacanovic, said he lied to SEC investigators and FBI agents when he corroborated Stewart's explanation of the ImClone trades.

Faneuil pleaded guilty to a misdemeanor charge of receiving money and other valuables ''as consideration for not informing.'' His plea was part of a deal to testify against Stewart and others who might be charged in connection with sales of ImClone shares.

Stewart resigned as a board member of the New York Stock Exchange earlier this month.

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