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New Twist In Martha Stewart Share Probe

Mar 20, 2003 | FT.COM

Martha Stewart, the embattled home design icon, has been paying tens of thousands of dollars in legal fees for a woman who could be one of the chief witnesses against her in the government's insider trading probe.

Ms Stewart has been making the payments for Mariana Pasternak, a friend who was travelling with Ms Stewart on a private jet on the day suspicious trades in a biotechnology company's shares took place, according to people familiar with the investigation.

Shortly before Ms Pasternak began talking to the Justice Department last year, she asked Ms Stewart to give her $150,000 to cover legal bills and mortgage payments on her home, the people said. Ms Stewart declined to make the home payment, but has been paying the legal fees.

People close to the probes say federal investigators have expressed satisfaction with Ms Pasternak's co-operation so far. Nonetheless, the fees arrangement could raise problems with witness credibility, and further calls into question Ms Stewart's judgment.

The US homemaking multi-millionaire has come under suspicion for selling about $225,000 worth of ImClone shares in December 2001, a day before the Food and Drug Admninistration rejected the company's promising cancer drug, sending its share price plummeting.

The Department of Justice and the Securities and Exchange Commission are investigating whether Ms Stewart relied on insider information for the share sale. She is also facing possible criminal charges for obstructing the investigation.

Lawyers for Ms Stewart and Ms Pasternak declined to comment on Thursday.

News of Ms Pasternak's legal fees comes as Ms Stewart's attorneys are set to meet with officials in Washington next week. A resolution of her case could come within a month, according to people familiar with the investigation.

Sam Waksal, ImClone's founder, has already pleaded guilty to multiple insider trading charges. He and Ms Stewart are close friends, and shared the same Merrill Lynch stockbroker.

Ms Stewart has denied wrong-doing, and said that the trade was based on a pre-existing agreement with the broker to sell her ImClone shares if they fell below $60.

But Douglas Faneuil, the broker's assistant, has told authorities that he called Ms Stewart on December 27 on his boss's orders and advised her that Mr Waksal and other insiders were dumping their shares ahead of the FDA ruling.

Ms Stewart was on a plane in San Antonio with Ms Pasternak, waiting to refuel before heading to Mexico, when she spoke to Mr Faneuil. Authorities had been investigating whether Ms Pasternak was privy to the call and passed information to her ex-husband, Bart, who also sold ImClone shares around that time.

The SEC sent a Wells notice to Ms Stewart in October, informing her that they were likely to bring civil charges against her.

Billy Tauzin, chairman of the Congressional committee that first probed the ImClone affair, said in September there were "substantial doubts" about Ms Stewart's version of events before referring the case to the Justice Department.

Shares in her company, Martha Stewart Living Omnimedia, have collapsed since the scandal erupted.

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