Martha Stewart Settles SEC Case

Ending her legal battle with the government, Martha Stewart has agreed to settle insider-trading charges by paying $195,000 and accepting a five-year ban on serving as a director of a public company.

The agreement with the Securities and Exchange Commission, announced Monday, resolves the issue that was at the heart of Stewart’s criminal trial but for which she was never prosecuted. Stewart, convicted in 2004 for obstructing an investigation into her sales of ImClone Systems Inc. stock, was not criminally charged with insider trading.

“This case sends a strong message that the SEC will not tolerate insider trading, especially where brokers tip their clients with confidential information that company insiders are selling their stock,” said Bruce Karpati, assistant director of the SEC’s Manhattan office.

Stewart neither admitted nor denied wrongdoing, as is common in such settlements.

The agreement effectively bars Stewart from serving as chief executive of her namesake media company, Martha Stewart Living Omnimedia Inc., for five years. But legal experts said the terms could have been harsher -- for example, she could have been banned for life from serving as a corporate director.

“At some point she’s going to want to get back in the leadership seat, and this allows her to do that,” said Jill Fisch, a securities law professor at Fordham University.

The settlement also falls short of a conviction for insider trading, noted John Coffee, a Columbia University law professor. “It will never be legally established that she committed insider trading,” he said.

The SEC case stemmed from Stewart’s December 2001 sale of 3,928 shares of ImClone Systems, a small biotechnology company led by Stewart’s friend Samuel D. Waksal.

The SEC alleged that Stewart dumped her holdings after her stockbroker, Peter Bacanovic, tipped her that the Food and Drug Administration would reject approval of an anti-cancer drug ImClone had developed. News of the FDA ruling later caused the stock to drop when it was made public.

Bacanovic agreed Monday to pay a $75,000 penalty. He also was convicted of obstruction of justice in 2004 for lying to investigators scrutinizing Stewart’s ImClone stock trades.

In the SEC settlement, Stewart will pay the $45,673 that she would have lost had she not sold her ImClone shares. She also agreed to pay three times that amount, or $137,019, as a penalty, plus $12,389 in interest.

The settlement allows both the SEC and Stewart to avoid the risks of a trial. Despite Stewart’s criminal conviction, proving insider trading by an active, experienced investor such as Stewart would be difficult, legal experts have said.

For Stewart, the settlement ends the prospect of a civil trial and another swirl of negative publicity. “My personal nightmare has come to an end,” Stewart said in a statement.

In its own statement, Stewart’s company said the deal “allows Martha to continue in her role as founder and as the creative force behind the brand.”

Shares of the company rose 7 cents to $16.95, far below their 52-week high of $34.74 on Aug. 30.