The Marth Stewart Case
...nd, an element of any fraud charge. Was she trying to boost the stock, or merely defending her honor? In Judge Cederbaum’s mind that question was one in which no reasonable jury could decide and thus kicked count 9 of the indictment. The Players The main players in the scandal, their role, as well as the verdicts and sentencing are as follows: Dr. Samuel Waksal Vital Stats: Waksal founded the biotech firm ImClone in 1985 and spent years developing the anti-cancer drug Erbitux. Not your average immunologist, he also built up an impressive collection of fine art and famous friends. He resigned from the troubled company, which had never turned a profit, on May 22, 2002, and handed the reins to his brother Harlan. On June 10, 2003, he was sentenced to 7 years and three months in prison, plus ordered to pay more than $4 million in back taxes and fines, for his role in the insider trading scandal. He is currently serving his sentence at a minimum-security prison in Pennsylvania. Role in Scandal: Accused of tipping off friends and family members to sell their shares of ImClone stock after getting advance warning that the FDA would not review Erbitux for approval, Waksal was arrested on June 12, 2002. The bank fraud charge, which brought the most severe penalty, stemmed from Waksal's forging of the name of ImClone's top lawyer to a document securing a line of credit. In a separate scheme described by prosecutors as pure greed, Waksal pleaded guilty on March 3, 2003, to dodging $1.2 million in sales taxes on nine paintings he bought from a New York art gallery. On Oct. 15, 2002, Waksal pleaded guilty to six counts, including bank fraud, securities fraud, conspiracy to obstruct justice and perjury. It was unclear whether Waksal was offering prosecutors any information in their investigation into Stewart as part of his plea. Martha Stewart Vital Stats: Stewart is the founder of Martha Stewart Living Omnimedia, an extremely popular cooking and crafts empire. She resigned as chairman and CEO of the company on June 4, 2003, after being indicted on securities fraud and obstruction of justice charges related to her sale of ImClone stock. After her March 5, 2004, felony conviction on four federal counts, she resigned from the company's board and as chief creative officer. She was to remain affiliated with her namesake media empire in a new role of founding editorial director, working on creative issues, brand building and writing books. Before the ImClone scandal dampened her finances, Stewart's estimated personal worth was about $650 million, a fortune amassed largely from taking her company public on the New York Stock Exchange in 1999. Initial sales of the stock to friends and employees went through her broker Peter Bacanovic, of Merrill Lynch. Her daughter, Alexis Stewart, once dated Sam Waksal and he subsequently became a close friend of Martha's. Role in Scandal: Stewart dumped nearly 4,000 shares of ImClone stock on Dec. 27, 2001, at a profit of $228,000. The sale raised the suspicion of congressional investigators, federal prosecutors and the Securities and Exchange Commission, and a federal grand jury returned a nine-count indictment on charges of conspiracy and lying to federal investigators on June 4, 2003. She pleaded innocent to all charges, and the most serious among them, securities fraud, was dismissed by a federal judge on Feb. 27, 2004. The Securities and Exchange Commission, meanwhile, filed civil charges against her alleging insider trading. Stewart's lawyers said she spoke with Bacanovic on the day she sold her ImClone shares and documents show she also called Waksal, though Stewart said the ImClone CEO was not available and the call was not returned. The next day, the Food and Drug Administration announced that it would not review Erbitux, and ImClone's price plummeted. Stewart said she made a verbal agreement with Bacanovic in November 2001 to sell her shares of ImClone if the price dropped below $60; Bacanovic said they had an agreement, but reportedly claims that it was made in December. Establishing whether such an order existed and when it was given was essential to the case. Verdict: On March 5, 2004, Stewart was found guilty of conspiracy, making false statements and obstruction of justice. The charges carry up to 20 years in prison. Sentence: On July 16, 2004, Stewart was sentenced to five months in prison, five months of home confinement, and two years' probation. Stewart also was fined $30,000. She began serving her term at the minimum-security women's prison camp at Alderson, W. Va., on Oct. 8, 2004. Peter Bacanovic Vital Stats: Bacanovic is a stock broker who counts Sam Waksal, members of the Waksal family and Martha Stewart among his clients. He was once employed by ImClone, and earned substantial commissions as the broker for Stewart's 1999 IPO. He was fired from his job at Merrill Lynch in the summer of 2002. Role in Scandal: Bacanovic was indicted along with Stewart by a federal grand jury on June 4, 2003, on charges of perjury and obstruction of justice. He pleaded innocent. The Securities and Exchange Commission, meanwhile, filed civil charges against him alleging insider trading. His role in the scandal centers on the question of what was said about the company's fate during a Dec. 27, 2001, phone call with Stewart. He says Stewart told him to sell her shares if the price dropped below $60, however such "stop-loss" agreements are usually written out. Verdict: On March 5, 2004, he was convicted of conspiracy, perjury, making a false statement and obstruction of justice, but was acquitted of making a false document. Sentence: On July 16, 2004, Bacanovic was sentenced to five months in prison and five months of home confinement. He must also pay a $4,000 fine. Douglas Faneuil Vital Stats: Faneuil was an assistant to Stewart's stock broker and co-defendant, Peter Bacanovic. Merrill Lynch fired him in October 2002. Role in Scandal: The order to sell Stewart's ImClone shares was executed by Faneuil. He initially backed up Stewart and Bacanovic on the existence of a stop-loss order, but changed his story after pleading guilty to the misdemeanor charge of accepting a payoff on Oct. 2, 2002. According to court papers, Faneuil was offered an extra week of vacation and given an increase in his commission rate in exchange for stonewalling probers. Sentence: Faneuil was fined $2,000 but spared both prison and probation. He had faced up to a year in prison, but prosecutors recommended no jail time after his testimony helped them secure Stewart's conviction. Timeline of Events Dec. 27, 2001: Martha Stewart sells 3,928 shares of ImClone. Stewart had bought these shares in 1999, but had been an investor in the company run by her friend Samuel Waksal since the early 1990s. Dec. 27 is the same day Waksal and his daughters tried to sell some of their shares. Both use Merrill Lynch broker Douglas Bacanovic. Both Stewart and Bacanovic are on vacation. Dec. 28, 2001: ImClone announces that the U.S. Food and Drug Administration has rejected its application for the approval of its one viable product, the highly touted cancer drug Erbitux. ImClone shares drop sharply the next day. Dec. 31, 2001: A Merrill Lynch administrator asks Bacanovic's assistant Douglas Faneuil about sales of ImClone shares by the Waksal’s and Stewart. Jan. 3, 2002: Faneuil questioned over the telephone by investigators for the U.S. Securities and Exchange Commission. Jan. 7, 2002: Bacanovic is back in New York, and he is also questioned over the telephone by the SEC. Bacanovic says he and Stewart had an arrangement that Stewart would sell her ImClone shares if the price fell below $60 per share. Jan. 28, 2002: SEC demands documents from Bacanovic. He later produces a worksheet with notes that the government alleges were altered after the fact to suggest the existence of the $60 agreement. Jan. 31, 2002: Stewart alters the text of a phone message recording a call by Bacanovic on Dec. 27, 2001, and then orders her assistant to change it back. This is part of the basis for one of the allegations that Stewart told little lies as well as one big one. Feb. 4, 2002: Stewart is questioned by the SEC, the FBI and a U.S. attorney's office. She also says she and Bacanovic had an arrangement to sell the ImClone shares at $60. The conversation is neither tape recorded nor transcribed, leading to some disputes at trial about exactly what was said. Feb. 13, 2002: Bacanovic testifies before the SEC under oath. He repeats his assertion of the $60 agreement as the reason for the ImClone sale. Feb. 14, 2002: Merrill Lynch produces a worksheet of Stewart's holdings with a "@60" notation next to ImClone. The government later alleges the document was "false and fraudulent" because the "@60" was added after the fact. April 10, 2002: Stewart interviewed over the telephone by the SEC, FBI and a U.S. attorney's office. She denies she was tipped off on the selling by the Waksal’s. June 2002: Press reports state that Stewart is under investigation by federal agencies for her ImClone sale and her ties to Waksal. June 7, 2002: Stewart's lawyer tells The Wall Street Journal she was not tipped by Waksal but sold her stock because of a "determination, made more than a month before that trade...to sell if the stock ever went less than $60." June 12, 2002: Sam Waksal is arrested on insider trading-related charges. June 12, 2002: Stewart issues a press release saying the $60 agreement was made "several weeks" after a tender offer by Bristol-Myers Squibb, which ended in late October 2001. June 18, 2002: Stewart tells an investment conference that she was not tipped by Waksal but sold her ImClone shares because of an agreement with her broker. June 18, 2002: Faneuil tells Merrill Lynch he has hired his own lawyer to represent him in the ImClone trading probe. Three days later, Merrill suspends Faneuil. June 25, 2002: Stewart ducks questions on regular "Martha Stewart Entertaining" segment on the CBS morning program The Early Show, saying, "I'm focusing on my salad." Aug. 7, 2002: Waksal is indicted on insider trading-related charges Oct. 16, 2002: Waksal pleads guilty without plea bargaining and throws himself on the mercy of the court. Late October 2002: Stewart's lawyers submit a Wells Notice to the SEC, giving their reasons why she should not be charged with insider trading. June 4, 2003: Stewart indicted. Jan 27, 2004: Trial begins with opening statements. Jan. 29, 2004: U.S. District Judge Miriam Cedarbaum delays Faneuil's testimony when it appears that prosecutors failed to comply with pre-trial disclosure obligations. The judge would later relax her ruling, limiting the delay. Feb. 2, 2004: Emily Perret, Waksal's assistant, testifies that on Dec. 27, 2001, a harried Stewart called Waksal, asking what was wrong with ImClone. The two never speak Feb. 3, 2004: Faneuil testifies that on Dec, 27, 2001, Bacanovic told him to tell Stewart that the Waksal’s were selling their ImClone shares Feb. 4, 2004: Faneuil testifies that Bacanovic pressured him not to tell the whole truth about Stewart's sale. Feb. 5, 2004: Faneuil admits he had had some run-ins with Stewart...