Feds look at information contradicting Stewart's statements

WASHINGTON -- Congressional investigators are looking at new information that appears to contradict what Martha Stewart and her now-suspended broker have said about her sale of ImClone 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, had plunged more than 20 percent in afternoon trading Monday as questions about her stock sale continued to swirl.

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

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 Fifth 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."

4,000 shares sold

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 combatting colorectal cancer.

Investigators say Stewart's telephone log shows that Bacanovic called her on 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.