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Martha Stewart Query Widens

Oct 10, 2002 | CBSNEWS.COM

Federal prosecutors have reportedly widened their investigation of Martha Stewart to include public statements explaining why she sold her ImClone Systems shares.

The Wall Street Journal says if the statements are shown to be false and were intended to boost the price of her own company's stock, then there would be a possible issue of securities fraud.

Stewart owns more than 60 percent of shares outstanding of Martha Stewart Living. The value of the shares have dropped more than 70 percent since June.

The Journal says it remains unclear whether any charges will be filed. The report says federal authorities are pursuing all possible avenues as they look into Stewart and her actions.

The home decorating diva is under investigation by the Justice Department for her sale of nearly 4,000 shares of ImClone Systems Inc. shares a day before the stock began to plummet on negative regulatory news.

Stewart has said she did nothing wrong when she sold the shares of ImClone shares just before they plunged.

Last week, Stewart resigned from the board of the New York Stock Exchange.

That announcement came a day after Douglas Faneuil, an assistant to Stewart's stockbroker, pleaded guilty to a misdemeanor charge of receiving money and other valuables for keeping quiet about Stewart's sale of ImClone shares last December.

Stewart had joined the NYSE's board of directors in June 2002 and was one of 27 members. Her term was set to expire in 2003.

Faneuil, 26, cut a deal with prosecutors that appeared to signal further legal trouble for Stewart.

Faneuil's guilty plea was part of a deal to testify against Stewart and others who might be charged in connection with sales of ImClone shares last December, just before the stock price plunged on news the Food and Drug Administration would not review its highly touted cancer drug, Erbitux.

In court, Faneuil said that during his interviews with law enforcement officials, "I did not truthfully reveal everything I knew about the actions of my immediate supervisor and the true reasons for the 'tippee's' sales."

Merrill Lynch, where Faneuil worked, handled Stewart's sale of nearly 4,000 ImClone shares.

Faneuil reportedly had accepted Knicks tickets in exchange for hiding his knowledge from investigators of the alleged insider stock deal involving Stewart. Court papers said he received an extra week of vacation and a free airline ticket.

Prosecutors are trying to determine if Stewart was tipped off by her friend Sam Waksal, ImClone's founder and ex-CEO, or her Merrill Lynch broker, Peter Bacanovic, who was Faneuil's boss.

In court papers, prosecutors said the tip, either directly or indirectly, came from Bacanovic. They also said that Bacanovic on Dec. 27 told a client, referred to in the papers as the "tippee," that Waksal was trying to sell all of the ImClone stock that he held at Merrill Lynch.

Waksal was indicted in August for allegedly tipping off family members to dump millions of dollars worth of ImClone stock before the bad news about Erbitux hit the markets. He pleaded innocent to the charges.

Stewart, who has previously denied any wrongdoing, has said she had a standing order with Bacanovic to sell the ImClone shares if they fell below $60. Faneuil, 26, initially gave investigators the same account but later changed his story and said there had been no such order.

Stewart spoke by phone with Faneuil the day her sale was made, investigators say.

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