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Was her timing too good?
Compiled from Times wires NEW YORK -- In the world according to Martha Stewart, the creme brulee is always exquisitely caramelized, the glue gun is locked and loaded and the Pima cotton sheets match the pillow shams. But away from the television cameras and magazine covers, things aren't quite so perfect for the gracious-living guru. Wall Street is getting twitchy about a congressional investigation into Stewart's sales of stock in the biotechnology company ImClone Systems. Investigators and federal prosecutors are examining whether Stewart had inside information when she sold nearly 4,000 shares the day before ImClone announced that the Food and Drug Administration had refused to review its application for a new cancer drug. ImClone's former chief executive, Sam Waksal, has been charged with insider trading for allegedly tipping off family members and trying to sell his shares before the FDA news was made public. Waksal, 54, a close friend of Stewart who dated her daughter Alexis, has denied the allegations. Stewart, 60, has said several times nothing was improper about her sale of $227,824 worth of ImClone shares. Wednesday, in her first public appearance since the scandal broke, Stewart told an industry conference: "I had no insider information. The sale was based on information available to the public that day. These are the essential facts and I'm sure that time will bear them out." Stewart, who was a model and stockbroker before starting the catering business that launched her one-woman media juggernaut, told the reporters and analysts gathered for an update on Martha Stewart Living Omnimedia that she would not comment further. What happened when?The questions about Stewart's stock sale come down to timing. On Dec. 4, the FDA told ImClone it had doubts about the application to approve Erbitux, an experimental cancer-fighting drug. Two days later, ImClone shares hit $75.45. That day, Harlan Waksal, Waksal's 49-year-old brother, sold $50-million of ImClone stock. On Dec. 26, Sam Waksal learned of the FDA rejection. Stewart sold 3,928 shares of ImClone on Dec. 27, the day before the company announced the FDA had rejected the application for Erbitux. ImClone shares fell more than $5 on Dec. 29. On the same day as her stock sale, Stewart called Waksal. Stewart says she never spoke to him, but left a message. The message, according to Waksal's log: "Martha Stewart something is going on with ImClone and she wants to know what." A second sentence reported that she was on her way to a Mexican resort. Stewart said she and her broker had agreed in mid November to sell her ImClone stock if the price fell below $60 a share. But, according to Wall Street Journal reports based on anonymous sources, her broker, Peter Bacanovic of Merrill Lynch & Co., said they reached the agreement in mid December. Stewart sold her shares at $58. The timing raises questions about whether Stewart traded on insider information. It is illegal to buy or sell stock based on information that isn't available to the public. In a statement Tuesday, Stewart said she has spoken with the Securities and Exchange Commission and the U.S. Attorney's Office and has cooperated with the U.S. House Energy and Commerce Subcommittee, which is investigating the ImClone case. The House subcommittee on Tuesday got a copy of a Raytheon air-flight log showing that Stewart traveled by private jet from Bridgeport, Conn., to San Jose del Cabo on Dec. 27, as she had said. The records confirmed that she stopped in San Antonio, Texas, to refuel. During that time, she made a one-minute call to her home answering machine, an 11-minute call to her office in New York -- during which she was connected to Bacanovic -- and a two-minute call to ImClone, her cell phone records showed. Rep. Jim Greenwood, R-Pa., chairman of the investigative subcommittee, said, "A prudent person would want to know, "What did Bacanovic know and what did he say?' " Telephone records and message logs show that Stewart called Waksal on Dec. 21, informing him that she was headed to Mexico. She left her contact information. "This clears up some of the confusion, but our investigators are still reviewing all of the information," said Ken Johnson, the committee's spokesman. "What we're still trying to do is nail down the timeline." Stewart's Washington attorney, James Fitzpatrick, told the committee that the panel would get a copy of the executed stock sale from Merrill Lynch. Committee members want to interview Bacanovic, 40, next week. The committee interviewed a Merrill Lynch analyst in April about a report he issued Dec. 27 speculating that regulators might refuse the application for Erbitux. The committee wants to explore whether Bacanovic, who had worked at ImClone from June 1992 to July 1993 and who had socialized with Waksal, was involved in crafting the report. On Wednesday, ImClone said it had received written notice that the SEC is considering filing charges against it for how it handled news of the FDA rejection -- the company initially downplayed its significance. Backlash affecting company?Since the first of the month when congressional investigators announced their inquiry, shares in Martha Stewart Living have taken a beating. The stock has tumbled about 25 percent and eroded Stewart's net worth by about $150-million. The investigation could obscure an incipient turnaround for the company. Earlier this year, it was laboring under the advertising recession and the possible loss of significant sales generated through Kmart Corp., which had filed for bankruptcy. In a still-weak advertising environment, ad pages for Martha Stewart Living are up 12 percent in the second quarter, the company said, ahead of its forecasts. Analysts said the more-robust-than-expected television-advertising picture will help the company. Meanwhile, the swirl of speculation that the company will dump Kmart as a partner has died. On Wednesday, shares of Martha Stewart Living rose 14 percent to close at $16.45 after executives increased their estimates for the second quarter. The company expects to earn 15 cents per share, up from an earlier estimate of 14 cents. Still, George Smith, an analyst with Davenport & Co., said, "There's a risk when the company's main asset is a person." Sometimes the brand continues to do well, he said, but "let's not dismiss the trouble this can cause and the fact this can taint her image." Sharon Patrick, president and chief operating officer of Martha Stewart Living, said the company's strategy has always been to develop brands that could exist separately from Stewart. She said correspondence from readers has been positive and there has been no effect on the company's business because of the ImClone investigations. "We have to say loud and clear we are confident here Martha will be vindicated and there won't be any long-term effect," Patrick said, adding that consumers are able to distinguish between Martha the personality and Martha the home expert. A former talent agent living in Bronxville, N.Y., Caroline Fitzgibbons started watching Stewart's show in college and this week was applying finishing touches to coconut cucumber soup and crab and cucumber salad -- both Martha recipes. She said the probe won't change her opinion of Stewart, in part because "Martha's personal life has always been ridiculous," she said. "What I like about Martha has nothing to do with securities fraud." But Stewart has long been a polarizing subject. Over the years, detractors have reveled in reports of Stewart temper tantrums and high-handedness and are sure to be gleeful about any setback. "There are large numbers of people saying, "I knew it all along. This is what she's really like,' " says Christopher Byron, author of a recent critical biography, Martha Inc. Stalwart fans have ignored the warts-and-all books and gossip-column sniping to concentrate on the doyenne of domesticity's advice on steps toward a perfect life. The question is whether current and future events will make some of those who love Stewart and her products love them less. -- Information from the Associated Press, Wall Street Journal, New York Daily News, Washington Post, New York Times and Time was used in this report. What's all the fuss about?Martha Stewart sold 3,928 shares of ImClone stock on Dec. 27 -- the day before the company announced the Food and Drug Administration had denied approval of ImClone's cancer drug, Erbitux. ImClone stock fell more than $5 per share on Dec. 29. Investigators with the U.S. House Energy and Commerce Subcommittee are still trying to figure out whether Stewart had prearranged with her broker in late November to sell her remaining ImClone shares if they fell below $60, or after Dec. 10, as the Wall Street Journal reported that her broker is saying. Stewart has maintained that her sale was based on information that was available to the public. It is against the law to trade stocks based on inside information that is not generally available to the public. Dr. Sam Waksal is founder and former chief executive of ImClone and a good friend of Stewart's who dated her daughter, Alexis. He was arrested last week on charges of insider trading for allegedly trying to sell his stock and tipping off family members after learning of the FDA's decision. Peter Bacanovic is the Merrill Lynch stockbroker who handled the sale of Stewart's ImClone stock. The chairman of the House subcommittee said Waksal and his daughter used Bacanovic as their broker, too. Bacanovic was also familiar with ImClone, where he worked from June 1992 until July 1993. Like Stewart, he also socialized with Waksal.
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