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Justice Dept. Gets Stewart Stock Case

Sep 11, 2002 | The Sacramento Bee The question of what home designer mogul Martha Stewart knew and when she knew it about the right time to sell ImClone stock was turned over Tuesday to the Justice Department by lawmakers who called for a criminal investigation into whether she lied to a congressional committee.

Rep. Billy Tauzin, R-La., chairman of the House Energy and Commerce Committee, sent a letter to Attorney General John Ashcroft announcing he was "deeply skeptical" of multimillionaire Stewart's account of a transaction in December 2001 in which she sold about 4,000 shares of ImClone stock.

Lawmakers emphasized that they had not reached any "formal conclusion" regarding whether her actions were criminal when she sold the shares a day before federal regulators rejected an application for ImClone's anti-cancer drug Erbitux.

The Food and Drug Administration decision set off an 87 percent plunge in ImClone stock and led to a widening probe of suspected insider trading.

Shares of Martha Stewart Omnimedia (ticker symbol MSO) have dropped more than 50 percent since the House committee announced in June it was probing Stewart's stock sale. However, shares jumped Tuesday nearly 17 percent after the announcement of the committee's action. The shares traded up $1.30 to close at $9.05 on the New York Stock Exchange.

"We believe it is our obligation to forward specific and credible information that could suggest a federal crime has been committed," said Tauzin. He noted that Stewart had repeatedly refused to be interviewed by committee staff and had been advised by her attorneys to invoke her Fifth Amendment rights if she were subpoenaed before a hearing.

Tauzin reported that at the last minute the committee received a letter from Stewart's attorneys confirming that if she were subpoenaed, in light of their inability to get access to "essential legal and factual information," she would not testify.

Stewart's attorneys said they welcomed the committee's decision to turn the matter over to the Justice Department.

"I strongly disagree with the analysis of the committee and its staff but am pleased that the matter will now be exclusively in the hands of professional law enforcement authorities who are trained to conduct a responsible and thorough investigation," said Stewart attorney Robert Morvillo.

The committee letter to the Justice Department noted that the False Statements Act made it a felony carrying a penalty of five years in prison and fines for anyone to "knowingly and willfully" make any materially false statement in the course of a congressional inquiry.

The letter was signed by Republican and Democratic leaders of the panel.

Rep. James Greenwood, R-Pa., chairman of the investigative subcommittee, challenged suggestions that Stewart was a "small player" in the ImClone controversy, noting that she was a former stockbroker, the chief executive officer of a major company and was on the board of directors of the New York Stock Exchange.

"She is very different from a little investor sitting home in her kitchen," he observed of the woman who built Martha Stewart Living Omnimedia.

Her talents as a saleswoman turned her into a tycoon. Martha Stewart bed linens and bathrobes, not to mention turkey basters, are sold in stores across the country, as well as a best-selling recipe book and a Martha Stewart magazine offering advice on domestic perfection.

"We were pursuing inconsistencies in the information she provided," Greenwood said.

At issue, according to the committee members, was the timing of certain communications between Stewart and Samuel Waksal, an ImClone executive since indicted on charges of bank fraud and perjury arising from alleged insider trading. The question is whether Stewart had advance information that the FDA was about to reject the Erbitux application.

Stewart has said she sold her ImClone stock because of a previous agreement with her now-suspended Merrill Lynch broker to unload it if its price fell below $60 a share.

According to Tauzin, the congressional committee had been prevented by lack of cooperation from resolving "discrepancies, ambiguities and suspicious communications." But he added that Stewart's version of what transpired had "raised a serious question as to whether those accounts were false, misleading and designed to conceal."

Committee members were divided on what course of action to take.

"I think the committee, against my recommendation, is going to punt this whole matter over to the Justice Department," Rep. Bart Stupak, D-Mich., predicted Tuesday on NBC's "Today" program.

"I think they're going to come up with no conclusion," he said, "and I believe they owe it to Martha Stewart and to the American people to finish this, and I think today we will be abdicating that."

Ken Johnson, a committee spokesman, had said last week the panel "reached the end of the road" in trying to get Stewart's cooperation and was considering legal action.

He said at the time that possible courses of action included the referral to the Justice Department for potential criminal prosecution.

Johnson also said phone records obtained by the committee appear to contradict statements by Waksal that he did not speak to Stewart or her agents between Dec. 14 and Jan. 5, as well as Stewart's assertion that Waksal did not return a call she made to him during that period.

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