Karen Belz
September 23, 2013 1:00 pm

We might be used to hearing about celebrities staying a day or two in jail after a run-in with the law, but in 2004, Martha Stewart made news when she was sentenced to five months in prison for lying to investigators about her sale of ImClone Systems stock in late 2001. She was also ordered two years of supervised probation, including five months of home confinement, as well as a fine of $30,000.

ImClone’s stock price dropped sharply at the end of 2001 when its drug Erbitux, which was an experimental antibody, failed to get approval from the FDA. Its founder, Samuel D. Waksal, was found guilty of insider trading, which meant that he tipped off his family and friends who had stocks, and urged them to sell before the stock dropped significantly. Martha’s broker, Peter Bacanovic, let her know of the news, and in turn, she sold $230,000 in ImClone shares on December 27, 2001. The news of the FDA’s decision went public just one day later.

On June 4, 2003, a federal grand jury in Manhattan indicted Stewart and Peter Bacanovic on nine criminal counts, including securities fraud, conspiracy, and obstruction of justice. Stewart plead not guilty, and stated that she had a standing order with Bacanovic to sell her shares if ImClone stock fell below $60.

Stewart’s trial began on January 20, 2004, and it was only one month later when Judge Miriam Goldman Cedarbaum threw out the charge of securities fraud – a charge that could have given Stewart as many as ten years behind bars. The trial ended on March 5th, and Stewart was found guilty of her remaining charges – which included two counts of making false statements to a federal investigator. It became perfectly clear in court that the $60 stock claim was a lie. After her conviction, she posted a statement that read:

Martha gained a lot of press over the news, and in a famous interview with Barbara Walters on 20/20, said the following:

Stewart also said that she thought Judge Cedarbaum was fair (Cedarbaum’s decision let her stay out of jail pending the appeal’s outcome) and expressed concern over the many people from her enterprise who had lost their jobs based on the controversy.

Martha was eventually sent to a prison in West Virginia that was dubbed “Camp Cupcake”, and served her time. Upon getting back, she worked hard to rebuild her image, despite being under house arrest and being monitored by an ankle bracelet.

Stocks in Martha’s company rose considerably during her prison stint, as investors bet on a Stewart comeback upon her release.

Did you think less of Martha after news of the fraud scandal became public? Do you think she had a successful comeback, or do you think she’s become less relevant since her release?

Image Credit: telegraph.co.uk/Christopher Hope (featured)

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