Source: SEC Lawyers Notify StewartOct 23, 2002 | AP Securities and Exchange Commission lawyers have told Martha Stewart that they are ready to file civil securities fraud charges against the home decor entrepreneur for her alleged role in an insider trading scandal, a source told The Associated Press on Tuesday.
The SEC gave Stewart a formal notice in recent weeks of its intent to file civil charges, said a source close to the investigation, speaking on condition of anonymity.
Stewart's lawyers reportedly have filed a response with the SEC.
In most cases, such a notice leads to filing of a civil lawsuit by the SEC.
The ImClone case is also being investigated by federal prosecutors in the Manhattan U.S. attorney's office. The move by the SEC does not necessarily mean criminal charges will be filed, though probers at the two agencies often work in tandem.
The possibility of civil charges represents a potentially devastating scenario for Stewart, who is accused of selling shares of ImClone Systems after getting tipped off about negative news surrounding one of its promising new cancer drugs.
Stewart has denied any wrongdoing and has not been charged, but the scandal has fractured her multibillion-dollar media empire. Her company's stock has tumbled 60 percent since she was linked to the scandal, and Stewart resigned earlier this month from the board of the New York Stock Exchange.
Stewart's lawyers referred calls to her public relations representative, Allyn Magrino, who declined to comment on the development. Martha Stewart Living Omnimedia Inc., where Stewart is chief executive and chairman, also declined to comment, as did an SEC spokesman.
Shares of Martha Stewart Living Omnimedia rose $1, or 13.3 percent, to close Tuesday at $8.50 on the New York Stock Exchange.
Stewart is already under investigation by the Justice Department, which is probing whether she lied to lawmakers about her sale of ImClone shares.
She sold nearly 4,000 shares of ImClone on Dec. 27 one day before the Food and Drug Administration announced it would not review the biotechnology company's cancer drug, Erbitux. ImClone's stock subsequently plummeted.
Stewart has maintained that she and her broker Peter Bacanovic had a standing order to sell the shares if the stock dropped below $60.
Stewart is friends with Sam Waksal, founder and former chief executive of ImClone, who pleaded guilty last week to several counts of bank fraud, securities fraud, conspiracy to obstruct justice and perjury.
Waksal did not implicate Stewart, and his plea was not part of an agreement to cooperate with prosecutors rare in a criminal plea.
Douglas Faneuil, Bacanovic's assistant, initially supported Stewart's and Bacanovic's account, but later admitted he withheld information when first interviewed by investigators from the SEC and the FBI.
Earlier this month, Faneuil pleaded guilty as part of a deal to testify against Stewart and others who might be charged in connection with sales of ImClone shares.
Faneuil admitted to a misdemeanor charge of receiving money and other valuables "as consideration for not informing."
Also Monday, U.S. Attorney James Comey filed papers in Manhattan federal court seeking to seize more than $10 million from Waksal's family members. He admitted tipping off his daughter, Aliza Waksal, to sell her ImClone shares just before the share price plunged.
During his plea, Waksal insisted his daughter and father, Jack Waksal, had done nothing wrong. Prosecutors say Jack Waksal sold more than $8 million of ImClone shares in five separate transactions Dec. 27-28.
Aliza Waksal sold $2.4 million worth of ImClone shares on Dec. 27.
Though neither Aliza nor Jack Waksal has been charged, prosecutors are trying to force them to forfeit all of that money.