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Lawmakers Seek Martha Stewart Probe

Sep 11, 2002 | AP Martha Stewart has been spared from having to testify before Congress about her sales of a biotech stock. But lawmakers are asking federal prosecutors to begin a criminal investigation into whether she lied to a House panel about her trading.

Stewart's attorneys viewed the House Energy and Commerce Committee's request to the Justice Department on Tuesday as preferable to a subpoena and congressional appearance.

Shares of the company, Martha Stewart Omnimedia, jumped almost 10 percent immediately after the lawmakers' announcement Tuesday afternoon. The shares closed at $9.05 — up $1.30, or 16.8 percent, from a day earlier on the New York Stock Exchange.

Attorneys for the domestic design tycoon said they welcomed the committee's action because the Justice Department already investigating possible insider trading of ImClone stock is the appropriate authority to address questions related to her stock sale.

"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," said Stewart attorney Robert Morvillo.

In a letter to Attorney General John Ashcroft, the Republican and Democratic leaders of the committee wrote, "As members of Congress we believe it is our obligation to forward specific and credible information in our possession that could suggest a federal crime has been committed."

Justice Department spokesman Mark Corallo said the agency will review the lawmakers' letter.

Stewart is a friend of former ImClone chief executive Sam Waksal, the only person so far charged in the federal investigation of ImClone Systems Inc., which he founded. He pleaded innocent last month to charges of securities fraud, perjury, bank fraud and obstruction of justice.

Stewart sold nearly 4,000 shares of ImClone stock on Dec. 27, a day before the company's application for federal review of its highly touted colon cancer drug, Erbitux, was denied.

"I think that she did that innocently," Stewart lawyer James Fitzpatrick said on CNN's "Moneyline" Tuesday night.

Committee spokesman Ken Johnson said panel investigators negotiated with Stewart's attorneys until shortly before the announcement, offering not to seek a Justice Department probe if she would agree to appear voluntarily and testify at a hearing next week.

In the letter, the lawmakers said they have been prevented from resolving discrepancies and "suspicious communications" involving the stock sale. Stewart has refused repeatedly to be interviewed by committee staff members, they said, and her attorneys have said that, if subpoenaed, she would invoke her Fifth Amendment right not to incriminate herself.

Evidence obtained by the committee caused lawmakers to be "deeply skeptical" of Stewart's version of events and raised questions about whether it was "false, misleading and designed to conceal material facts," the letter to Ashcroft said.

The request for Justice Department action was announced by Rep. Jim Greenwood, R-Pa., chairman of the panel's investigative subcommittee, and Rep. Billy Tauzin, R-La., chairman of the full committee.

The letter cites the False Statements Act, which makes it a felony for anyone to "knowingly and willfully make any materially false statement" in an investigation by Congress. The penalty is up to five years in prison and a fine.

Phone records obtained by the committee appear to contradict statements by ImClone's 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, committee aides have said.

Stewart has maintained she told her now-suspended Merrill Lynch broker to dispose of the stock if it dropped below $60 per share.

Lawmakers have been trying to determine whether Stewart, before her stock sale, had information that the Food and Drug Administration was going to reject Erbitux. The company's stock subsequently plummeted.

Their letter said Stewart failed to tell the committee about a phone call from her broker, Peter Bacanovic, on the morning of Dec. 27, only mentioning a call he made to her that afternoon. "This omission is material," the letter said, because the earlier call occurred when ImClone shares were trading at or above the $60 limit.

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