House Panel Widens Stewart Inquiry

Congressional investigators Monday were looking at new information that appears to contradict what Martha Stewart and her now-suspended broker have said about her sale of ImClone Systems Inc. stock.

A House committee is interested in a widening circle of Stewart acquaintances. The latest is a doctor who also sold shares of the biotech company shortly before the government announced it had rejected ImClone’s approval application for the cancer drug Erbitux.

Stewart, who commands a multimedia empire and a profitable corporation, increasingly is under the glare of government scrutiny and tabloid attention--bringing investor displeasure.

Shares of her company, Martha Stewart Living Omnimedia Inc., plunged 21.4% to finish at $12.55 on Monday. Omnimedia stock is traded on the New York Stock Exchange, of which Stewart recently became a director.

Shares of Stewart’s company have been battered since June 6, when reports of the congressional investigation of her ImClone stock sale surfaced.

Former ImClone Chief Executive Samuel Waksal, a friend of Stewart, was arrested June 12 by FBI agents at his Manhattan apartment on charges of securities fraud and conspiracy. Waksal invoked the 5th Amendment the next day at a House hearing.

On Friday, Peter Bacanovic, the Merrill Lynch broker shared by Stewart, Waksal and Waksal’s two daughters, and Bacanovic’s assistant were suspended with pay by the brokerage firm for what it called “factual issues regarding a client transaction.”

Investigators with the House Energy and Commerce Committee are examining whether Stewart had inside information when she sold nearly 4,000 shares of ImClone on Dec. 27, a day before the announcement that the Food and Drug Administration had decided not to consider Erbitux, an experimental drug that the company had touted as miraculous in combating colorectal cancer.

Investigators said Stewart’s telephone log showed that Bacanovic called her Dec. 27 and told her, according to her secretary’s entry, that he “thinks ImClone is going to start trading downward.”

That’s curious because the stock had been declining for several weeks, said Ken Johnson, a spokesman for the House panel.

“Why did Mr. Bacanovic call her on that particular day?” he asked.

The timing of his call, which is not yet known, is crucial. Investigators want to know whether it occurred before or after ImClone stock hit $60, the level at which Stewart has said she had a standing order with Bacanovic to sell her shares.

The investigators also want to look at Bacanovic’s client list to see whether others dumped ImClone stock before the FDA rejection became publicly known.

More broadly, federal prosecutors and the Securities and Exchange Commission have been investigating possibly suspicious trading of ImClone stock by several people.

News of the FDA rejection brought a sell-off in ImClone shares.

Stewart has repeatedly said her trade was legal and based on information available to the public at the time.

Bacanovic’s assistant at Merrill Lynch, Douglas Faneuil, who handled Stewart’s ImClone sale, has given information to the firm that appears to contradict what Stewart and Bacanovic maintain was the trigger for the sale.

They have said the stock was sold because of a previously arranged order to dump the shares when ImClone fell below $60.

Such a “stop-loss order,” a common practice, would back up Stewart’s position that she didn’t trade on inside information.

But recent statements from Faneuil to Merrill Lynch legal officials have cast doubt on whether such an order existed, the Wall Street Journal reported Monday.

The congressional investigators are setting up interviews with Bacanovic and Faneuil for this week, Johnson said.

There is another discrepancy that has made them question whether Stewart had a stop-loss order on the stock: Bacanovic has said he and Stewart decided to put it in place on or after Dec. 10, whereas Stewart told the investigators it took effect in late November.

It turns out Stewart was not alone on the private jet she took from Connecticut to San Jose del Cabo, Mexico, on Dec. 27, the day of her stock sale. With her was Mariana Pasternak, the ex-wife of Bart Pasternak, a doctor who sold 10,000 ImClone shares the next day, before the company announced the FDA rejection.

The investigators have interviewed Bart Pasternak and want to meet with Mariana Pasternak, Johnson said.

In what he called “another one of those strange coincidences” in the ImClone affair, Johnson noted that Bacanovic had worked at ImClone in the early 1990s.

Bart Pasternak told the Associated Press on Saturday that he, his ex-wife and Stewart had done nothing wrong.

“We certainly did not do anything that is under investigation,” he said.

“Our friendship with Martha makes us the subject of questioning. I’m absolutely convinced she did nothing wrong.”