Martha Stewart shares tumble because of reports of wider probe

The Associated Press
Thursday June 27, 2002

NEW YORK — Shares of Martha Stewart Living Omnimedia Inc. tumbled almost 24 percent Wednesday, fueled by reports that the style maven may face a wider probe into alleged insider trading. 

The widening investigation was reported Wednesday by The Wall Street Journal, which cited a person familiar with the case and said possible charges could include obstruction of justice and making false statements. 

The Journal also reported that an assistant to Stewart’s stockbroker had changed his initial version of her Dec. 27 sale of shares of ImClone Systems Inc. 

Shares of Stewart’s multimedia company fell $3.20 to close at $10.40 on the New York Stock Exchange. The stock has fallen about 45 percent since news broke this month that Stewart’s sale of stock in the biotech company was under scrutiny in an insider trading investigation. 

At issue is whether Stewart misled prosecutors in explaining why she sold almost 4,000 shares of ImClone a day before the Food and Drug Administration announced it would not consider Erbitux, ImClone’s experimental cancer drug. 

Stewart is a friend of former ImClone CEO Sam Waksal, who was arrested two weeks ago on charges of insider trading for allegedly trying to sell his stock and tipping off family members after learning of the impending FDA decision. 

The Journal said sales assistant Douglas Faneuil acknowledged that he misled his brokerage firm’s lawyers and the Securities and Exchange Commission when he supported the claim that Stewart and her stockbroker had a prearranged sales agreement to dump the shares when they fell below $60. The newspaper cited people familiar with the matter. 

The stockbroker, Peter Bacanovic, also is the broker for Waksal and his daughter Aliza. 

In repeated public statements, Stewart has pinned her innocence to the existence of this agreement, which she said was done verbally. She has insisted the trade was lawful and done based on public information. 

A call Wednesday by The Associated Press to Stewart’s publicist was not returned. 

In an appearance Tuesday on CBS’ “The Early Show,” Stewart said: “I think this will all be resolved in the very near future and I will be exonerated.” 

According to the Journal report, Faneuil said he created his story after being pressured by Bacanovic, and now says he was unaware of the agreement. 

Faneuil is expected to be interviewed by representatives of the U.S. attorney’s office in New York, the newspaper said. 

Merrill Lynch announced last week that it had put Bacanovic and Faneuil on paid leave, following an internal investigation, citing discrepancies in their accounts. 

Richard Strassberg, the attorney representing Bacanovic, declined to comment. 

Marvin Smilon, a spokesman for the U.S. Attorney’s office in Manhattan, also declined to comment. Neither Tim Cobb, a spokesman for Merrill Lynch, nor Marc Powers, the attorney for Faneuil, immediately returned calls.