Regulators tell Martha Stewart they expect to file civil charges. She'll have 30 days to respond to the Securities and Exchange Commission filing, which could lead to a fine and removal from her CEO post

By Gary Susman
Updated October 22, 2002 at 04:00 AM EDT
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Credit: Martha Stewart: Rose Hartman/Globe

Martha Stewart will likely be facing a civil suit over her alleged insider trading, the Wall Street Journal reports, now that the Securities and Exchange Commission has served her with a Wells Notice. The SEC’s enforcement unit sends such documents to potential defendants, informing them that it plans to recommend to the full commission that civil charges of securities fraud be filed, and that the recipient has 30 days to explain her side of the story. But since Stewart may have been served with the notice as long ago as three weeks, the Journal reports, her day of reckoning could come very soon.

If she is sued, she could be fined the amount she saved by selling her shares of ImClone stock a day before its price tumbled — about $45,000 — plus three times that amount in penalties. She could also be barred from serving as a corporate officer, which means she would have to step down as CEO of her company, Martha Stewart Living Omnimedia. It’s also still possible that the Justice Department could file criminal charges against her.

Stewart has denied any wrongdoing in the Dec. 27 ImClone sale, insisting that the trade was the result of a standing stop-loss order to sell the shares if the price fell below $60, and not the result of insider knowledge that ImClone’s new cancer drug was about to be rejected by federal regulators. However, Douglas Faneuil, her broker’s assistant, contradicted that story when he pleaded guilty to charges of blackmail three weeks ago for accepting favors in return for corroborating what he said was the false cover story about the stop-loss order. Last week, ImClone founder and Stewart pal Sam Waksal pleaded guilty to charges of insider trading, obstruction of justice, perjury, and bank fraud charges. He did not implicate Stewart. The domestic diva has not commented on the Wells Notice.

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