United States v. Stewart

287 F. Supp. 2d 461 (2003)

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United States v. Stewart

United States District Court for the Southern District of New York
287 F. Supp. 2d 461 (2003)

  • Written by Robert Cane, JD

Facts

Martha Stewart (defendant) sold several thousand shares of stock in ImClone Systems, Incorporated (ImClone) on December 27, 2001. The next day, ImClone announced that the Food and Drug Administration (FDA) had rejected its application for approval of a drug. Stewart and her stockbroker, Peter Bacanovic (defendant) had relationships with Samuel Waksal, the CEO of ImClone at the time. The government (plaintiff) alleged that Bacanovic, as Waksal’s stockbroker, learned of Waksal and his family’s intention to sell their shares of ImClone and instructed a subordinate to inform Stewart of such intention, which caused Stewart to sell her shares of ImClone. Stewart was CEO of Martha Stewart Living Omnimedia (MSLO) at the time. It was evident that the success of MSLO depended heavily on Stewart’s reputation. The government alleged that Stewart made several false statements regarding her reason for selling ImClone stock in order to protect the share price of MSLO from reputational damage. That is, Stewart claimed she had predetermined to sell her shares if the price of ImClone stock dipped below $60 per share on three separate occasions in June of 2002. No evidence was offered to show that Stewart was concerned with the share price of MSLO stock around the time of her public statements denying insider trading related to ImClone. Stewart was charged with one count of making materially false statements of fact regarding her sale of stock with the intent to defraud and deceive investors in order to prevent a decline in value of stock issued by MSLO, among other counts. Stewart moved for judgment of acquittal on this count before the United States District Court for the Southern District of New York.

Rule of Law

Issue

Holding and Reasoning (Cedarbaum, J.)

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