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The Honolulu Advertiser
Posted on: Saturday, May 27, 2006

Martha Stewart decides to challenge SEC charges

By Anne D'Innocenzio
Associated Press

Martha Stewart

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NEW YORK Martha Stewart continues to fight to clear her name.

Stewart, who completed a five-month prison sentence a year ago for lying about her sale of ImClone stock, has decided to fight rather than settle civil insider trading charges brought by the U.S. Securities and Exchange Commission.

In an 11-page response to the SEC complaint filed late Thursday with the U.S. District Court for the Southern District of New York, Stewart denied allegations that she sold 3,928 shares of ImClone Systems Inc. stock based on "material, nonpublic information." Instead, she said she "acted in good faith."

District Court Judge Richard J. Holwell has mandated that evidence-gathering be completed by Nov. 20 and set a pretrial conference for Nov. 17.

Fighting the charges offers Stewart, founder of Martha Stewart Living Omnimedia Inc., the chance to reclaim her chief executive and chairman titles. But another public trial could deal a blow to the company and stall the turnaround that it has made over the past year.

Some believed it might be in Stewart's interest to settle the charges since she has still been able to wield considerable influence over her multimedia empire.

The June 2003 SEC complaint filed the same day Stewart was indicted was stayed until criminal proceedings were completed. With Stewart's criminal appeals recently exhausted, the SEC lifted the stay last month.

"We took these charges seriously then, as we do now," said Bruce Karpati, assistant director of enforcement at the SEC. "Now that the judge has permitted the case to go forward, we plan to vigorously prosecute this case of illegal insider trading."

The original SEC complaint seeks to bar Stewart from working as a director and to limit her responsibilities as an officer of a public company. Stewart resigned as chairman and CEO at Martha Stewart Living in June 2003 after being indicted.

Stewart was convicted in March 2004 for lying to federal prosecutors about selling ImClone shares a day before the Food and Drug Administration announced it had declined to review ImClone's application for its cancer drug Erbitux. The FDA announcement sent ImClone shares plummeting. Stewart resigned from the Martha Stewart Living board a week after she was convicted, maintaining her title as founder.

In her response to the SEC, Stewart continued to maintain her innocence, sticking to her defense that she had an agreement with her broker, Peter Bacanovic, to sell ImClone shares when it fell to $60 per share.

If Stewart loses the SEC case, she faces up to three times the losses avoided through her trades of ImClone, the SEC said.