Martha Stewart went to jail for lying to the court in 2001 about having prior knowledge that the price of a stock she owned was going to fall. This knowledge is called insider trading. She spent 5 months in jail and was released on 2 years probation. After release, she was required to spend 5 more months on house arrest, where she could not leave her own home. A fine of $30,000 was also instituted.
The stock that Martha Stewart owned and sold on December 27, 2001 — the day before its price fell — was from a company called ImClone. ImClone Systems is a biopharmaceutical company. The main drive of their research and production is cancer medications.
Throughout the investigation and subsequent sentencing, Stewart maintained her innocence. In an interview she did with Barbara Walters, Stewart claimed her innocence and stated, “I didn’t cheat the little people. We’re all little people. I didn’t cheat anybody out of anything.”
Peter Bancovic, Stewart’s former stock broker, was accused of telling Stewart that the stock owned by ImClone’s CEO was being sold off prior to the FDA’s expected ruling on the company’s newest cancer drug. It looked as if ImClone’s CEO expected a bad report on the drug, and was selling off his own shares to avoid financial loss. In point of fact, many of the company’s executives sold off their shares just prior to the FDA’s ruling.
When a new drug is created and preliminary clinical tests are completed, the FDA is required to give a ruling on the approval or disproval of the drug. In late 2001, ImClone’s newest cancer drug, Erbitux, was not expected to receive the FDA’s approval. The date of the FDA’s announcement was set for December 28, 2001.
Martha Stewart sold off about $230,000 worth of ImClone’s stock on December 27, 2001. If Bancovic actually told Stewart about this event, then he was guilty of insider trading. Stewart’s sale of her stock on December 27, 2001, incriminated her as also guilty of this federal crime. The court found Stewart and Bancovic guilty and that’s why Martha Stewart went to jail, after she was sentenced on July 16, 2004.
The legal battle took over 2 years to find resolution. As a result, when Martha Stewart went to jail, she had to give up her multimedia empire. In an interview given after sentencing, she said, “Many, many people have suffered. People have lost jobs. I am very saddened and very, very sorry for that.” She also stated, “There are certain people who I wish I’d never met. I have lost my job. I have lost my position in my company. I am no longer the CEO of Martha Stewart Omnimedia. That makes me angry and sad.”
In 2004, a partner company of ImClone’s set new clinical trials for the cancer drug and Erbitux was eventually approved by the FDA for use as a colon cancer drug. Since the Stewart scandal on 2001, ImClone was bought out by Eli Lilly Company, another biopharmaceutical company. I hope you now see why Martha Stewart went to jail.