U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19794 / August 7, 2006
SEC v. Martha Stewart and Peter Bacanovi, 03 Civ. 4070 (RJH) (S.D.N.Y.)
Martha Stewart and Peter Bacanovic Agree to Settle SEC Insider Trading Charges
The Securities and Exchange Commission today announced that it has reached an agreement to settle insider trading charges against Martha Stewart and Peter Bacanovic relating to Stewart's sale of ImClone Systems stock in December 2001. Under the settlement, Stewart and Bacanovic agree to pay disgorgement and penalties. Stewart also agrees to a five year bar from serving as a director of a public company and a five year limitation on the scope of her service as an officer or employee of a public company. In August 2004, the Commission barred Bacanovic from associating with a broker, dealer or investment adviser.
The Commission's complaint, filed in June 2003, charges Stewart and Bacanovic with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint alleges that on December 27, 2001, Bacanovic, then a broker, illegally tipped his client, Stewart, with the nonpublic information that the then CEO of ImClone Systems, Samuel D. Waksal, and his daughter were selling their ImClone stock. Based on this information, Stewart sold all of her ImClone stock. The next day, ImClone announced that the FDA had refused to file ImClone's license application for a new cancer drug, Erbitux, and ImClone's stock price dropped 16%.
Stewart and Bacanovic have agreed to settle the Commission's enforcement action by consenting to final judgments that impose permanent injunctions prohibiting them from violating the antifraud provisions of the federal securities laws and imposing the following relief against each defendant. Stewart will pay disgorgement of $45,673, representing the losses avoided from her insider trading, plus prejudgment interest of $12,389, for a total of $58,062, and a civil penalty of $137,019, representing three times the amount of the losses avoided. Stewart has also agreed to a five year bar from serving as a director of a public company, and a five year limitation on her service as an officer or employee of a public company by prohibiting her from participating in certain activities, including financial reporting, financial disclosure, monitoring compliance with the federal securities laws, internal controls, audits or Commission filings. Bacanovic will pay disgorgement of $510, representing the commissions he earned as a result of the Stewart's ImClone stock sale, plus prejudgment interest of $135, for a total of $645, and a civil penalty of $75,000.
The proposed judgments provide that, pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, the disgorgement and penalties will be deposited with the Court and added to the disgorgement fund for the benefit of the victims of this case. The Commission is today filing the proposed final judgments with the U.S. District Court in Manhattan for consideration and approval. The defendants consent to the judgments without admitting or denying the allegations in the complaint.
The Commission acknowledges the assistance of the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation in the investigation of this matter.
[Securities and Exchange Commission v. Martha Stewart and Peter Bacanovic, 03 Civ. 4070 (RJH) (S.D.N.Y.)] (L.R. 19794).