On July 16, 2004, Martha Stewart was sentenced to five months in prison, followed by five months of home confinement and two years probation for insider trading, conspiracy and obstruction of justice in the ImClone stock trading scandal.
The scandal began in late 2001, when Martha Stewart allegedly sold 3,928 shares of ImClone stock the day before the stock value fell 18%. ImClone's new drug Erbtux failed to receive FDA approval, thus sending the share price downward and saving Stewart over $45,000 from the sale of her shares. The company's founder was arrested in 2002 on charges of insider trading, leading to the investigation of Stewart on similar charges.
On June 4, 2003, Martha Stewart and her former broker were indicted on charges of securities fraud, obstruction of justice and conspiracy. The following March, Stewart was found guilty of those charges. Along with Stewart, ImClone's founder Samuel Waksal was sentenced to seven years and three months in prison and ordered to pay over $4 million in fines and taxes. Stewart's former broker, Peter Bacanovic, was also found guilty of all charges and was given the same sentence as Stewart.
As a result of her charges and convictions, Martha Stewart was forced to resign from her seats on the NYSE and Revlon Cosmetics, as well as being barred from holding any seat on the board of any publicly traded company for the next five years. (To read more, see Top 4 Most Scandalous Insider Trading Debacles.)