- The Washington Times - Saturday, February 1, 2003

NEW YORK (AP) Federal prosecutors in Manhattan have stepped up their insider-trading investigation of Martha Stewart, reinterviewing witnesses and meeting with her attorneys in recent weeks, according to sources close to the case.
The recent burst of activity has renewed speculation, after months in which the case had appeared to lose momentum, that Mrs. Stewart could eventually face criminal charges ranging from insider-trading to obstruction of justice. The Securities and Exchange Commission already has signaled that it will file a civil complaint that could cost Mrs. Stewart heavy fines and her job as CEO of her company.
Mrs. Stewart, 61, chairman and chief executive officer of Martha Stewart Living Omnimedia Inc., was first targeted by regulators after her sale of 3,928 ImClone Inc. shares worth about $228,000 on Dec. 27, 2001.
The day after she sold her shares in the biotechnology company, the Food and Drug Administration announced it would not review ImClone's application for a promising cancer drug, Erbitux. The stock subsequently plummeted.
Investigators suspect that Mrs. Stewart received a tip that her friend, ImClone founder Samuel Waksal, and members of his family were unloading their own stock in the company.
Waksal is awaiting sentencing after pleading guilty last year to fraud and insider trading. He faces up to 65 years in prison, but could get far less under sentencing guidelines.
The SEC notified Mrs. Stewart in September that it had enough evidence to file civil charges against her. But when the commission delayed taking action, and the U.S. Attorney's Office appeared to reach a lull in its criminal investigation, it seemed Mrs. Stewart might steer clear of legal difficulties.
Prosecutors have refused to comment on the yearlong probe.
But the sources, speaking on the condition of anonymity, told the Associated Press that investigators are reinterviewing key figures in the case, including staff at Merrill Lynch, where Mrs. Stewart's broker worked before he was fired. The broker, Peter Bacanovic, has thus far escaped charges, but his assistant has pleaded guilty to lying about the suspicious trade and is cooperating with authorities.
A call to an attorney for Mr. Bacanovic was not returned.
In his guilty plea, the assistant, Douglas Faneuil, said that Mrs. Stewart knew Waksal was dumping his stock at the time of her own trade.
Mrs. Stewart, through her attorneys, has denied any wrongdoing.
Those attorneys resumed private talks with prosecutors in a bid to head off criminal charges, sources said. The attorneys contend that Mrs. Stewart's sale was triggered by an agreement she had with her broker to sell ImClone stock if it fell below $60.
White-collar investigations are typically time-consuming because dozens of potential witnesses must be screened, said Seth Taube, a former SEC official. In this case, investigators are also reviewing e-mail messages and phone logs that provide a partial record of the events surrounding Mrs. Stewart's sale.
Mrs. Stewart's spokeswoman declined comment for this report. But Mrs. Stewart has responded to the most recent wave of bad publicity by breaking a six-month silence and agreeing to an interview with the New Yorker magazine.
"My business is about homemaking," she said over lunch at her country home in Westport, Conn. "And that I have been turned into or vilified openly as something other than what I really am has been really confusing."
Mrs. Stewart estimated that she has lost $400 million with the decline in value of her more than 30 million shares in her multimedia company, along with legal fees and lost business opportunities. But she vowed not to step down.
"It's sort of the American way to go up and down the ladder, maybe several times in a lifetime," she said. "And I've had a real long up … And now I've had a long way down."
Mr. Taube, the former SEC official, believes the interview was designed to calm the nerves of Martha Stewart Living Omnimedia shareholders and show that "she's still in control of the company and moving the company forward."



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