The Securities and Exchange Commission’s enforcement staff has informed Martha Stewart that it intends to recommend filing civil securities fraud charges against her in connection with her controversial sale of ImClone Systems Inc. stock in late December, according to people familiar with the matter.
The SEC’s enforcement staff informed Ms. Stewart of its intentions through a so-called Wells Notice, which gives people under investigation notice that the agency’s staff wants to file charges, and time to respond to the allegations. In most cases, a Wells Notice leads to the filing of civil charges by the commission, although at times, people under investigation are able to convince the agency to scale back or drop the matter. Any final charges would have to be approved by the entire commission in Washington.
The move is major setback for Ms. Stewart. Already, federal prosecutors have ramped up their probe into her trade of nearly 4,000 shares of ImClone in late December, just before the company released some negative news about one of its cancer-fighting drugs that sent its shares into a tailspin. Prosecutors are weighing criminal charges against Ms. Stewart for alleged insider trading as well as obstruction of justice and making false statements about the reason for her sale.
Ms. Stewart has stated that she sold the stock because of a pre-existing arrangement to sell the shares when they fell below $60. However, officials at the SEC and the U.S. Attorney’s office in Manhattan became doubtful about the veracity of her story after a Merrill Lynch & Co. trading assistant who handled the sale of ImClone stock said no such arrangement existed.
The SEC notice involves possible charges of insider trading, and the move comes as prosecutors also are close to making final decisions about whether to charge in their investigation of the matter.
A lawyer for Ms. Stewart declined to comment.