Re: 2/3/03 - The Canadian Press/AP: U.S. federal government turns up heat in Martha Stewart case
U.S. federal government turns up heat in Martha Stewart case
DEVLIN BARRETT AND TOM HAYS
Canadian Press
Sunday, February 02, 2003
NEW YORK (AP) - Even Martha 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.
U.S. federal prosecutors in Manhattan have stepped up their investigation of Stewart's now infamous sale in late 2001 of ImClone stock, reinterviewing witnesses and meeting with her lawyers in recent weeks, sources told The Associated Press.
That's fuelled speculation that Stewart could eventually face criminal charges, ranging from insider-trading to obstruction of justice. The Securities and Exchange Commission already has signalled that it will file a civil complaint that could cost Stewart heavy fines and her job as CEO of her company.
Prosecutors have refused to comment on the yearlong investigation.
Such probes 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, 61, chairwoman and chief executive of Living Omnimedia, was first targeted by regulators after her sale of 3,928 ImClone shares worth about $228,000 on Dec. 27, 2001.
The day after the deal, the Food and Drug Administration announced it would not review the biotech company'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 U.S. stocks regulator 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.
But the new year brought fresh signs of trouble.
Sources familiar with the probe said investigators are reinterviewing key figures in the case, including employees 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 co-operating 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 their client and her broker had an agreement to sell ImClone stock if it fell below $60 US.
Stewart's spokeswoman declined comment on the latest developments in the case. 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."
Stewart estimated that she has lost $400 million US due to the decline in value of her more than 30 million shares in her multimedia company, along with legal fees and lost business opportunities. But she said she won't step down.
"It's sort of the American way to go up and down the ladder, maybe several times in a lifetime," she said. "And I've had a real long up ... And now I've had a long way down."
Taube, the former SEC official, believes the interview was designed to calm the nerves of Living Omnimedia shareholders and show that "she's still in control of the company and moving the company forward."
© Copyright 2003 The Canadian Press
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