Martha Stewart’s criminal charges were conspiracy, obstruction of justice, making false statements to federal investigators, and securities fraud — four counts stemming not from her December 2001 ImClone stock sale itself but from the story she told about it afterward. A federal jury convicted her on the first three in March 2004. The securities fraud count never reached the jury; the judge threw it out. She was never criminally charged with insider trading.
The Four Criminal Counts
The indictment grouped Stewart’s alleged conduct into four categories, each tied to a specific federal statute.
Conspiracy (Count 1), under 18 U.S.C. § 371. Prosecutors alleged Stewart and her Merrill Lynch broker, Peter Bacanovic, coordinated to obstruct the government’s investigation and to make matching false statements about why she sold her 3,928 ImClone shares on December 27, 2001.
False statements (Counts 3 and 4), under 18 U.S.C. § 1001. Stewart told federal investigators she had a pre-existing agreement with Bacanovic to sell ImClone if the stock dropped below $60 per share, and denied receiving any tip about ImClone CEO Sam Waksal’s own selling. Investigators concluded the $60 story was fabricated after the fact.1Securities and Exchange Commission. Martha Stewart and Peter Bacanovic
Obstruction (Count 8), under 18 U.S.C. § 1505. This count covered Stewart’s interference with the SEC’s civil investigation into the trade.
Securities fraud (Count 9). The most aggressive theory in the indictment. Prosecutors argued that when Stewart publicly proclaimed her innocence, she was really trying to prop up the stock of her own company, Martha Stewart Living Omnimedia, and thereby defrauding its shareholders. The trial judge granted her motion for acquittal on this count before it went to the jury, ruling the government had not produced enough evidence of intent to defraud her stockholders.2Justia. United States of America v. Martha Stewart and Peter Bacanovic
Why Insider Trading Was Not One of the Charges
This is the single most misunderstood part of the case. U.S. Attorney James Comey declined to charge Stewart criminally with insider trading. She had not received a direct tip about the FDA’s imminent rejection of ImClone’s cancer drug Erbitux. What she got from Bacanovic’s assistant, Douglas Faneuil, was secondhand information that Waksal and his family were trying to dump their ImClone shares. Building a criminal insider trading case on that fact pattern would have been, as Comey put it at the time, “unprecedented.” The SEC pursued insider trading separately as a civil matter.
What the Jury Decided
After three days of deliberation, the jury convicted Stewart on all four counts still in front of it: conspiracy, both false-statement counts, and obstruction. The jury acquitted her on certain individual specifications within the false-statement counts, but the counts themselves stood.2Justia. United States of America v. Martha Stewart and Peter Bacanovic
The Sentence
In July 2004, Stewart was sentenced to five months in federal prison, followed by five months of home confinement with electronic monitoring, two years of supervised release, and a $30,000 fine. She reported to the Federal Prison Camp in Alderson, West Virginia, in October 2004.
The Separate SEC Civil Case
The SEC’s civil insider trading case ran on a separate track and did not carry criminal penalties. Stewart settled it in 2006 without admitting or denying the allegations. She paid $45,673 in disgorgement (the losses she avoided on the trade), $12,389 in prejudgment interest, and a $137,019 civil penalty calculated at three times the avoided losses — roughly $195,000 in total. The settlement also barred her from serving as a director of any public company for five years and restricted her participation in financial reporting, audits, and securities compliance during that period.3Securities and Exchange Commission. Martha Stewart and Peter Bacanovic
The Appeal
Stewart appealed her convictions to the U.S. Court of Appeals for the Second Circuit. The court rejected every argument and affirmed all four convictions. The case was remanded only on a narrow sentencing question relating to her co-defendant.2Justia. United States of America v. Martha Stewart and Peter Bacanovic