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More Head Wind For Martha

Sep 2, 2002 | Newsweek Even when Martha Stewart cooperates with the insider-trading probe that’s dogged her all summer, she still manages to appear less than forthcoming. Last week her lawyers delivered more than 1,000 pages of e-mails, phone records and other documents to congressional investigators demanding the domestic diva clear up discrepancies in her story about her ImClone stock sale. Stewart met the deadline for the document dump with an hour to spare.

THE ONLY PROBLEM: investigators couldn’t read portions of her documents because they were blacked out. Stewart’s people contended the blacked-out sections “had nothing to do with ImClone.” But investigators had run out of patience. “Her credibility has been stretched pretty thin,” says congressional spokesman Ken Johnson. Late last week Martha’s lawyers appeased investigators a bit by returning to Capitol Hill with unedited documents.

Stewart herself may be trudging up to Capitol Hill soon. Congressional investigators, annoyed that she continues to rebuff their requests for an interview, say they are strongly considering compelling the queen of perfection to testify.

Investigators tell NEWSWEEK they found no “smoking gun” in Martha’s s documents. But they are surprised at the relatively small number of relevant e-mails and they’ve asked her lawyers to look for more. If they subpoena Stewart, it could come as early as next week, when Congress returns from summer break.

In fact, sources tell NEWSWEEK that the congressional committee is already considering specific dates to schedule the hearing. “If she’s innocent, then why won’t she come before the committee and clear this up?” says Johnson. “There are growing questions in our minds.”

The biggest question: who’s telling the truth about ImClone? Stewart still insists she dumped her ImClone holdings on Dec. 27 because of a prearranged sell order, not because she had inside info that federal regulators would nix ImClone’s cancer drug the next day.

But her broker’s assistant reportedly told federal investigators that he alerted Martha on Dec. 27 that her friend Sam Waksal, then ImClone’s CEO, was trying to unload stock. “We are convinced beyond a shadow of a doubt that someone is lying to us,” says Johnson.

If that someone turns out to be Martha Stewart, she could be facing charges of obstruction of justice. The congressional committee has the power to refer criminal charges against Stewart. Indeed, the committee is “very close” to seeking charges against Waksal for making false statements to Congress and obstructing an investigation, says Johnson. Waksal, who was indicted on insider trading Aug. 7, insists he is innocent, says a source close to him.

But congressional and criminal investigations are not Martha Stewart’s only problem. Now she’s being accused of insider trading in stock of her own company. A lawsuit filed last week by a shareholder of Martha Stewart Living Omnimedia alleges that Stewart, several executives and board members dumped $79 million in company stock before she was publicly linked to the ImClone investigation. Since news broke of Martha’s ImClone troubles in early June, shares in her company have plunged 56 percent. However, the shareholder suit offers no evidence that Stewart or her executives knew she was being investigated as they sold stock in the first half of this year. A spokeswoman for Stewart’s company said: “The lawsuit is without foundation and we intend to defend it aggressively.”

Martha herself remains mum. She declines interview requests and is on “hiatus” from the CBS “Early Show” because she refuses to answer any more questions about insider trading while working in her TV kitchen. But increasingly, it’s looking as if Martha’s next TV appearance will be in a congressional hearing room.

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