Martha Stewart

Martha Stewart (born August 3, 1941) is an American businesswoman, author, television personality, and lifestyle brand founder who was convicted of federal crimes related to a 2001 stock sale. In March 2004, she was found guilty of conspiracy, obstruction of justice, and making false statements to federal investigators in connection with her sale of ImClone Systems stock. What Martha Stewart went to prison for was not insider trading itself, but rather lying to federal investigators about her reasons for selling the stock.

How long Martha Stewart went to prison was five months, which she served at the Federal Prison Camp at Alderson in West Virginia, a minimum-security facility sometimes called "Camp Cupcake." She was also sentenced to five months of home confinement, two years of supervised release, and fined $30,000. Stewart surrendered to begin her sentence on October 8, 2004, and was released on March 4, 2005.

Early Life and Career

Martha Helen Kostyra was born on August 3, 1941, in Jersey City, New Jersey. She was the second of six children born to Edward Kostyra, a pharmaceutical salesman, and Martha Ruszkowski Kostyra, a homemaker and teacher. Stewart grew up in Nutley, New Jersey, where she learned cooking, sewing, and gardening from her mother and grandmother.

Stewart attended Barnard College of Columbia University, where she studied European history and architectural history. While in college, she worked as a model and appeared in television commercials. She married law student Andrew Stewart in 1961 and had one daughter, Alexis, in 1965. The couple divorced in 1990 after 29 years of marriage.

Business Career

After working as a stockbroker on Wall Street during the late 1960s and early 1970s, Stewart began a catering business in her basement in 1976. Her catering business grew successful, and in 1982 she published her first book, Entertaining, which became a bestseller.

Stewart built a media and lifestyle empire under the company Martha Stewart Living Omnimedia (MSLO), which she founded in 1997. Her business interests extended into publishing, television, home goods, and merchandising. The company went public in 1999, and Stewart became the first female self-made billionaire in the United States when the stock price rose on the first day of trading.

By 2001, Stewart was one of the most recognizable businesswomen in America, with a television show, magazine, newspaper column, and extensive product lines sold through retailers including Kmart and Macy's.

ImClone Stock Sale

The Transaction

On December 27, 2001, Martha Stewart sold 3,928 shares of ImClone Systems stock, receiving approximately $228,000. ImClone was a biotechnology company that had developed an experimental cancer drug called Erbitux. The following day, on December 28, 2001, the U.S. Food and Drug Administration announced that it had declined to review ImClone's application for Erbitux, and the company's stock price dropped sharply.

Stewart's sale came one day before the FDA announcement and on the same day that ImClone's founder, Samuel Waksal, and members of his family were selling their shares. Stewart had received a phone call from her broker, Peter Bacanovic at Merrill Lynch, while she was traveling to Mexico for vacation. Bacanovic's assistant, Douglas Faneuil, informed Stewart that Waksal was selling his shares, and Stewart immediately ordered the sale of all her ImClone stock.

Investigation

The Securities and Exchange Commission and the U.S. Attorney's Office for the Southern District of New York began investigating the ImClone stock sales in early 2002. When questioned by investigators, Stewart claimed that she had a pre-existing agreement with her broker to sell her ImClone shares if the price fell below $60 per share.

Federal investigators determined that no such agreement existed and that Stewart had been tipped off about Waksal's sales through her broker's office. They also concluded that Stewart and Bacanovic had coordinated their stories about the supposed $60 sell order and had altered a document to support their false account.

Samuel Waksal, the founder of ImClone, pleaded guilty to insider trading charges in October 2002 and was sentenced to more than seven years in federal prison.

Federal Charges and Conviction

What Martha Stewart Was Charged With

In June 2003, a federal grand jury in Manhattan indicted Martha Stewart on nine counts, including securities fraud, obstruction of justice, and conspiracy. The charges did not include insider trading, as prosecutors determined they could not prove that Stewart knew the information she received was material non-public information.

The specific charges against Stewart included:

• Conspiracy: Stewart and her broker Peter Bacanovic were charged with conspiring to obstruct justice and make false statements to federal investigators.

• Obstruction of Justice: Stewart was charged with impeding the federal investigation by making false statements and concealing evidence.

• Making False Statements: Stewart was charged with lying to federal investigators about her reasons for selling the ImClone stock.

• Securities Fraud: Prosecutors alleged that Stewart committed securities fraud by making public statements denying wrongdoing, which artificially propped up the stock price of her own company, Martha Stewart Living Omnimedia.

Peter Bacanovic was also indicted on charges of conspiracy, obstruction of justice, making false statements, and perjury.

Trial and Conviction

Martha Stewart's trial began on January 20, 2004, in the U.S. District Court for the Southern District of New York before Judge Miriam Goldman Cedarbaum. In February 2004, Judge Cedarbaum dismissed the securities fraud charge, ruling that there was insufficient evidence that Stewart's public statements were intended to prop up her company's stock price.

On March 5, 2004, the jury convicted Stewart on all four remaining counts: one count of conspiracy, two counts of making false statements, and one count of obstruction of justice. Each count carried a maximum sentence of five years in prison. Peter Bacanovic was convicted on four of the five counts against him.

Sentencing

On July 16, 2004, Judge Cedarbaum sentenced Martha Stewart to five months in federal prison, five months of home confinement, and two years of supervised release. She was also fined $30,000. The sentence was at the low end of federal sentencing guidelines, which called for 10 to 16 months of imprisonment.

Peter Bacanovic received the same sentence: five months in prison, five months of home confinement, two years of supervised release, and a $4,000 fine.

Stewart's attorneys filed an appeal, but she chose to begin serving her sentence before the appeal was decided, stating that she wanted to put the matter behind her.

Incarceration

Where Martha Stewart Served Her Prison Sentence

Martha Stewart surrendered to begin her sentence on October 8, 2004, at the Federal Prison Camp at Alderson (FPC Alderson) in Alderson, West Virginia. The facility is a minimum-security prison camp for female inmates, sometimes referred to informally as "Camp Cupcake" due to its reputation as one of the more comfortable federal facilities.

FPC Alderson was established in 1927 as the first federal women's prison in the United States. The facility, located on 95 acres in a rural area of southeastern West Virginia, houses approximately 1,000 inmates. Notable former inmates have included singer Billie Holiday, political activist Lynette "Squeaky" Fromme, and television personality Leona Helmsley.

Prison Experience

During her incarceration, Stewart was assigned inmate number 55170-054 and was housed in a two-person room. She performed various institutional jobs, including cleaning and grounds work, and was reportedly paid 12 cents per hour. Stewart participated in crafts activities, including crocheting and ceramics, and attended yoga classes.

Stewart later described her time in prison as "life-altering" and said it gave her time for reflection. She told interviewers that she tried to maintain a positive attitude and looked for ways to be productive during her sentence. Reports indicated that she was a cooperative inmate who got along well with other prisoners and staff.

Stewart was released from FPC Alderson on March 4, 2005, after serving her full five-month sentence. She was transported by private jet to her 153-acre estate in Bedford, New York, to begin her five-month period of home confinement.

Home Confinement

During her home confinement, Stewart was required to wear an electronic monitoring ankle bracelet and was permitted to leave her property for only 48 hours per week for work-related activities. She was allowed to conduct business during this period and began planning her return to television and other media ventures.

Stewart completed her home confinement in August 2005 and her supervised release in March 2007.

Civil Penalties and Financial Consequences

In addition to her criminal conviction, Martha Stewart faced civil penalties from the Securities and Exchange Commission. In August 2006, she agreed to settle SEC civil charges by paying $195,081, which included disgorgement of the losses she avoided by selling her ImClone stock, prejudgment interest, and a penalty.

Stewart was also barred from serving as a director of a public company for five years as part of the SEC settlement. This prohibition prevented her from serving on the board of her own company, Martha Stewart Living Omnimedia, until 2011.

The scandal significantly impacted Stewart's business empire. Martha Stewart Living Omnimedia's stock price dropped dramatically following her indictment and conviction, falling from a high of about $19 per share in 2003 to below $8 per share in 2004. The company also lost major advertising and merchandising contracts during this period.

Life After Release

Business Recovery

Following her release from prison and home confinement, Martha Stewart worked to rebuild her business empire and public image. She returned to television with new programs, including Martha, a syndicated daytime talk show that premiered in September 2005, and The Martha Stewart Show, which ran from 2005 to 2012.

Stewart resumed her role at Martha Stewart Living Omnimedia, though she was prohibited from serving as a director until 2011 due to the SEC settlement. She continued to write books, produce magazines, and develop product lines for major retailers.

In 2015, Sequential Brands Group acquired Martha Stewart Living Omnimedia for approximately $353 million. Stewart remained involved with the brand as chief creative officer and continued to license her name for various products.

Later Ventures

Stewart has continued to expand her business interests and public profile in the years following her release. She has entered new ventures including a CBD product line in partnership with Canopy Growth Corporation in 2020. She has also maintained a popular social media presence and has appeared in various entertainment projects.

In May 2023, at age 81, Stewart appeared on the cover of the Sports Illustrated swimsuit issue, becoming the oldest model to appear on the cover. The cover appearance was widely seen as evidence of her successful rehabilitation of her public image.

In October 2024, Netflix released Martha, a documentary about Stewart's life directed by R.J. Cutler. The film covered her early life, business career, legal troubles, and comeback.

Terminology

This section defines key terms relevant to Martha Stewart's case.

• Obstruction of Justice refers to the federal crime of interfering with the administration of justice, including impeding investigations, destroying evidence, or making false statements to investigators.

• Making False Statements is a federal crime under 18 U.S.C. § 1001, which prohibits knowingly making false statements to federal agents or officials during an investigation or proceeding.

• Conspiracy in federal law refers to an agreement between two or more persons to commit a crime, followed by an overt act in furtherance of that agreement.

• Insider Trading refers to the illegal practice of trading securities based on material non-public information. Stewart was not charged with insider trading, though her broker's tip about Waksal's sales prompted the investigation.

• Home Confinement is a form of supervised release that requires the defendant to remain at their residence except for approved activities such as work or medical appointments.

• Supervised Release is a period of community supervision following release from prison, during which the defendant must comply with certain conditions set by the court.

Notable Associates and Related Cases

• Peter Bacanovic – Stewart's broker at Merrill Lynch who provided information about Waksal's stock sales and was convicted in the same investigation. He served five months in prison.

• Douglas Faneuil – Bacanovic's assistant who actually placed the call to Stewart and later cooperated with prosecutors in exchange for a reduced sentence.

• Samuel Waksal – Founder of ImClone Systems who pleaded guilty to insider trading charges and was sentenced to more than seven years in federal prison.

• ImClone Systems – Biotechnology company that developed Erbitux; at the center of the insider trading investigation.

• FPC Alderson – Federal Prison Camp in Alderson, West Virginia, where Stewart served her five-month sentence.