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Stewart Likely To Face Civil Charges From Regulators

Oct 21, 2002 |

US securities regulators have told Martha Stewart they plan to bring a civil case against the home design guru stemming from their probe of inside trading at ImClone, the biotechnology company.

The Securities and Exchange Commission has informed Ms Stewart's lawyers of the likely charges and asked for their response, according to people familiar with the investigation.

The onus is now on the home design guru and her lawyers to convince regulators why they should not bring charges. The SEC action would represent the first formal charges against Ms Stewart in a scandal that has already tarnished her image and knocked hundreds of millions of dollars from her company's market value. Ms Stewart is the public face of a global home design empire spanning merchandise, magazines and television shows.

The charges could bolster a parallel criminal investigation of Ms Stewart being carried out by the US attorney's office. They may also increase pressure on Ms Stewart to step down from the company she founded.

Authorities have been probing whether Ms Stewart relied on insider information in December when she sold her stake in ImClone for $227,000 the day before the Food and Drug Administration publicly rejected Erbitux, the company's promising anti-cancer drug, and sent the shares spiralling.

Sam Waksal, ImClone founder and Ms Stewart's close friend, pleaded guilty last week to several insider trading charges.

Ms Stewart's spokesperson declined to comment on Monday. Ms Stewart has denied any wrongdoing in the matter and stated that her decision to sell was based on a pre-arranged agreement with her broker.

The SEC declined to comment. It sent Ms Stewart's lawyers a "Wells" notice detailing the proposed charges just over a week ago. Such notices are meant to give potential targets the opportunity to submit an account of their version of events and circumstances. They usually result in enforcement proceedings.

The Wells procedure, while designed to help people and companies being investigated, is just as helpful for the SEC as the written submission usually gives the agency invaluable information. The SEC often works in conjunction with criminal investigators when they file such actions. Any material that civil regulators uncover can then be passed on to criminal authorities.

Martha Stewart Living Omnimedia said it would not comment on the investigation. The board denied in September that it was searching for a replacement for Ms Stewart but said hey "actively monitor" the business needs of the company with regard to "investigations involving Ms Stewart".

Shares in the company have fallen more than 60 per cent since the scandal erupted in June.

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