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E-mails May Doom Martha's Broker

Aug 9, 2002 | CNN/Money

Congressional investigators have discovered e-mails indicating that Martha Stewart's broker, Peter Bacanovic, and his assistant may have known that regulators were set to reject ImClone's application for a new cancer drug.

Rep. James Greenwood, R-Pa., chairman of the House Energy and Commerce subcommittee, which is investigating the matter, told CNNfn of an exchange between Bacanovic and his assistant, Doug Faneuil, that took place shortly before federal regulators announced they would not consider the application.

One e-mail with "imcl" in the subject line was sent by Bacanovic to Faneuil, saying "Has the news come out yet? Let me know. Thx, P." IMCL is Imclone's stock symbol on Nasdaq.

Faneuil responded: "Nothing yet. I'll let you know. No call from Martha either."

In another e-mail, also dated Dec. 27, Faneuil notifies Stewart that her ImClone stock was sold, according to a House Energy and Commerce source.

Investigators are trying to determine whether Stewart had inside information when she sold nearly 4,000 ImClone shares on Dec. 27, the day before the Food and Drug Administration announced it had refused to review the biotechnology company's application for its cancer drug, Erbitux. The news sent ImClone's stock tumbling.

While the e-mails do not prove that Bacanovic and Faneuil knew that the FDA was going to reject ImClone's Erbitux application, they suggest that they knew, Greenwood told Reuters.

"It certainly is not proof positive, but it is very suggestive of the fact that ... Bacanovic and Faneuil were aware of pending news, the negative news from the FDA and how it would impact the stock," Greenwood told the news agency in an interview.

"It also of course indicates they made efforts to contact Ms. Stewart about this," he was quoted as saying.

Merrill Lynch has placed both Faneuil and Bacanovic on paid leave. The e-mails cited by Greenwood were part of records Merrill has provided to investigators.

Stewart has said that she and Bacanovic had a pre-existing agreement to sell her shares if the price dipped below $60, which it did on Dec. 27. However, Bacanovic's assistant, Douglas Faneuil, has told investigators that he advised Stewart to sell her shares that day, a source has told CNN/Money.

Faneuil also claims that Bacanovic ordered him to tell Martha to sell her ImClone shares, the Wall Street Journal has reported. But Bacanovic denies telling his assistant to do anything improper and did not order Faneuil to tell Stewart to dump her shares, CNN/Money has reported.

Congressional Investigators have been unable to find any written evidence of a pact between Bacanovic and Stewart.

Stewart, who has not been charged and has repeatedly denied any wrongdoing, has already provided some phone logs and other personal records to Congress as it investigates the sale.

A spokeswoman for Stewart could not be reached for comment late Friday, nor could officials at her company, Martha Stewart Living Omnimedia.

Faneuil did not return a telephone message. Attorneys for Bacanovic and Faneuil could not be reached.

Will Martha talk?
Separately, congressional investigators might subpoena Stewart to force her to answer questions regarding her sale of ImClone stock last December, while a key witness reportedly is cooperating with investigators.

Earlier this week, congressional panels probing Stewart's sale of ImClone stock sent a letter to the homemaking guru, urging her to reconsider her refusal to voluntarily appear before investigators to answer questions.

At that time, a spokesman for the House Energy and Commerce Committee said it would subpoena Stewart to get the information it needs. Now it appears that the congressional panel is seriously thinking about forcing Stewart to appear before them.

"We are considering the possibility of issuing a subpoena to Martha Stewart to appear before our committee," Ken Johnson, a spokesman for the House Energy and Commerce Committee, told CNNfn Friday. "However, Chairman (Billy) Tauzin (R-La.) has not made a final decision."

News of the subpoena follows reports that a key witness is cooperating with investigators.

Mariana Pasternak, a Westport, Conn., real estate agent who is a friend of the home-decor merchandiser, was with Stewart on her private jet heading for a Mexico vacation at about the time she sold the shares, the Wall Street Journal reported Friday.

Pasternak is the ex-wife of Dr. Bart Pasternak, a friend of former ImClone CEO Sam Waksal. Dr. Pasternak himself sold 10,000 ImClone shares before the FDA rejected the company's drug application, the newspaper said in its report.

Waksal, also a close friend of Stewart's, was indicted Wednesday on charges of securities fraud, bank fraud and perjury related to his attempt to sell ImClone shares, and for allegedly tipping off others to sell their stock before the FDA announced its decision. The former ImClone CEO is expected to be arraigned Monday morning.

Stewart and Pasternak were headed to Mexico Dec. 27 for a vacation when Stewart sold her shares. The next day was the day the FDA announced the rejection.

Pasternak and her ex-husband have made initial contact with congressional staffers, people familiar with situation told CNNfn. But federal prosecutors have asked the congressional committee to "lay off" Pasternak, a source close to the investigation told CNN.

Stewart is also under investigation by the U.S. Attorney's office in Manhattan for possible insider trading as well as obstruction of justice and making false statements about why she sold her ImClone stock, the Wall Street Journal reported.

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