Feds turn up the heat in Martha Stewart case


Martha Stewart, chairman and CEO of Martha Stewart Omnimedia, offers brioche to the public with New York Stock Exchange President William Johnston outside the NYSE as her stock went public on Oct. 19, 1999 file photo. Even Stewart would say that last year - with her name tarnished by corporate scandal and her company's stock performing like a fallen souffle - was not a good thing. This year could turn out worse. Federal prosecutors in Manhattan have stepped up their investigation of Stewart's now infamous sale of ImClone stock, reinterviewing witnesses and meeting with her lawyers in recent weeks, sources told the Associated Press

(AP Photo/Richard Drew)
Published: Saturday, February 1, 2003 at 6:01 a.m.
Last Modified: Saturday, February 1, 2003 at 2:09 a.m.

NEW YORK - Federal prosecutors in Manhattan have stepped up their insider-trading investigation of Martha Stewart, reinterviewing witnesses and meeting with her lawyers in recent weeks, according to sources close to the case.

The recent burst of activity has renewed speculation, after months in which the case had appeared to lose momentum, that Stewart could eventually face criminal charges ranging from insider-trading to obstruction of justice. The Securities and Exchange Commission already has signaled that it will file a civil complaint that could cost Stewart heavy fines and her job as CEO of her company.

Stewart, 61, chairwoman and chief executive of Martha Stewart Living Omnimedia Inc., was first targeted by regulators after her sale of 3,928 ImClone Inc. shares worth about $228,000 on Dec. 27, 2001.

The day after she sold her shares in the biotech company, the Food and Drug Administration announced it would not review ImClone's application for a promising cancer drug, Erbitux. The stock subsequently plummeted on the bad news.

Investigators suspect that Stewart received a tip that her friend, ImClone founder Samuel Waksal, and members of his family were unloading their own stock in the company.

Waksal is awaiting sentencing after pleading guilty last year to fraud and insider trading. He faces up to 65 years in prison, but could get far less under sentencing guidelines.

The SEC notified Stewart in September that it had enough evidence to file civil charges against her. But when the commission delayed taking action, and the U.S. attorney's office appeared to hit a lull in its criminal investigation, it seemed Stewart might steer clear of legal difficulties.

Prosecutors have refused to comment on the yearlong probe.

But the sources, speaking on condition of anonymity, told The Associated Press that investigators are reinterviewing key figures in the case, including staff at Merrill Lynch, where Stewart's broker worked before he was fired.

The broker, Peter Bacanovic, has so far escaped charges, but his assistant has pleaded guilty to lying about the suspicious trade and is cooperating with authorities.

A call to a lawyer for Bacanovic was not returned.

In his guilty plea, the assistant, Douglas Faneuil, alleged that Stewart knew Waksal was dumping his stock at the time of her own trade.

Stewart, through her lawyers, has denied any wrongdoing.

Those lawyers resumed private talks with prosecutors in a bid to head off criminal charges, sources said. The lawyers claim Stewart's sale was triggered by an agreement she had with her broker to sell ImClone stock if it fell below $60.

White-collar investigations are typically time-consuming because dozens of potential witnesses must be screened, said Seth Taube, a former SEC official. In this case, investigators are also reviewing e-mails and phone logs that provide a partial record of the events surrounding Stewart's sale.

Stewart's spokeswoman declined comment for this story. But Stewart has responded to the most recent wave of bad publicity by breaking a six-month silence and agreeing to an interview with The New Yorker magazine.

``My business is about homemaking,'' she said over lunch at her country home in Westport, Conn. ``And that I have been turned into or vilified openly as something other than what I really am has been really confusing.''

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