Stewart comes under closer scrutiny by congressional panel
WASHINGTON (AP) – Seemingly contradictory accounts of Martha Stewart’s sale of ImClone stock and actions by a widening circle of her acquaintances are drawing the attention of congressional investigators. The latest is a doctor who also sold shares of the biotech company shortly before the government announced it had rejected ImClone’s approval application for the cancer drug Erbitux.
Stewart, who commands a multimedia empire and a profitable corporation, increasingly is under the glare of government scrutiny and tabloid attention – bringing investor displeasure. Shares of her company, Martha Stewart Living Omnimedia, plunged 21.4 percent to finish at $12.55 Monday as questions about her ImClone stock sale continued to swirl. Omnimedia stock is traded on the New York Stock Exchange, of which Stewart recently became a director.
Shares of Stewart’s company have been battered since June 6 – they were trading at around $19 then – when reports surfaced of the congressional investigation of her ImClone stock sale.
Stewart, in her weekly appearance on CBS’ “The Early Show,” said Tuesday: “I think this will all be resolved in the very near future and I will be exonerated.”
Chopping cabbage for a potluck salad, she declined to discuss specifics, noting, “I’m involved in an investigation that has very serious implications.”
What Stewart, herself a former stock broker, and her now-suspended Merrill Lynch broker have said about the ImClone stock sale apparently clashes with the account of the broker’s assistant.
The affair has supplanted Enron Corp. and other companies as the corporate scandal du jour:
-Former ImClone chief executive Samuel Waksal, a friend of Stewart, was arrested June 12 by FBI agents at his New York City apartment on charges of securities fraud and conspiracy. Waksal invoked the Fifth Amendment the next day at a House hearing and refused to answer lawmakers’ questions.
-On Friday, Peter Bacanovic, the Merrill Lynch broker shared by Stewart, Waksal and Waksal’s two daughters, and Bacanovic’s assistant were suspended with pay by the brokerage firm for what it called “factual issues regarding a client transaction.”
Investigators with the House Energy and Commerce Committee are examining whether Stewart had inside information when she sold nearly 4,000 shares of ImClone on Dec. 27, a day before the announcement that the Food and Drug Administration had decided not to consider Erbitux, an experimental drug for combating colorectal cancer.
Investigators say Stewart’s telephone log shows Bacanovic called her on Dec. 27 and told her, according to her secretary’s entry, that he “thinks ImClone is going to start trading downward.”
But Ken Johnson, a spokesman for the House panel, said the stock had been declining for several weeks. “Why did Mr. Bacanovic call her on that particular day?” he asked.
Investigators want to know whether the call occurred before or after ImClone stock hit $60, the level at which Stewart has said she had a standing order with Bacanovic to sell her shares. Stewart also tried to reach Waksal that day.
The investigators also want to look at Bacanovic’s client list to see whether others dumped ImClone stock before the FDA rejection became publicly known.
More broadly, federal prosecutors and the Securities and Exchange Commission have been investigating trading of ImClone stock by several people.
Stewart has said repeatedly that her trade was legal and based on information available to the public at the time.
Bacanovic’s assistant at Merrill Lynch, Douglas Faneuil, who handled Stewart’s ImClone sale, has given information to the company that appears to contradict what Stewart and Bacanovic maintain was the trigger for the sale.
They have said the stock was sold because of a previously arranged order to dump the shares when ImClone fell below $60. Such a “stop-loss” order, a common practice, would back up Stewart’s position that she didn’t trade on inside information. But recent statements from Faneuil to Merrill Lynch legal officials have cast doubt on whether such an order existed, The Wall Street Journal reported Monday.
There is another discrepancy: Bacanovic has said he and Stewart decided to put the stop-loss order in place on or after Dec. 10, while Stewart told the investigators it took effect in late November.
It turns out Stewart was not alone on the private jet she took from Connecticut to San Jose del Cabo, Mexico, on Dec. 27, the day of her stock sale. With her was Mariana Pasternak, the ex-wife of Bart Pasternak, the doctor who sold 10,000 ImClone shares the following day, before the company announced the FDA rejection.
Investigators have interviewed Pasternak and want to meet with Mariana Pasternak, Johnson said.
Bart Pasternak told The Associated Press on Saturday that he, his ex-wife and Stewart have done nothing wrong.
“We certainly did not do anything that is under investigation,” he said. “Our friendship with Martha makes us the subject of questioning. I’m absolutely convinced she did nothing wrong.”
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On the Net:
House Energy and Commerce Committee: http://energycommerce.house.gov
Stewart company: http://www.marthastewart.com