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Martha Stewart Facing Insider Trading Investigation

Aired June 24, 2002 - 11:42   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
LEON HARRIS, CNN ANCHOR: Martha Stewart's tiny empire is in a bit of a mess this morning. The lifestyle diva is facing an insider trading investigation. Stewart cleared her cupboard of a pharmaceutical stock just a day before the FDA panned that company's experimental cancer drug. The woman known for her handing out tips denies that she actually got one, about the stock, that is.

Now, Stewart's mess is getting a bit messier. "Time" magazine reports a close friend also dumped his stock at nearly the same exact time.

Dan Kadlec wrote the story for time. He joins us from New York this morning to flesh out more of the details.

Good morning. How are you doing?

DAN KADLEC, "TIME" MAGAZINE: Hi, Leon, pretty good.

HARRIS: Very interesting case of some more coincidences that are really giving authorities plenty to go after here in this case. Just give us a thumbnail here of what happened.

KADLEC: Well, the coincidence keep mounting and at some point you have to wonder how much coincidence really is there. Martha Stewart was traveling with doctor -- the man's name is Dr. Pasternack (ph), Dr. Bart Pasternack (ph). He's a friend of Martha Stewart's. His former wife was traveling with Martha Stewart when Martha made her sale. He made his sale roughly the same time, which is a huge coincidence, and it's something that investigators want to know a lot more about. They are asking now for Mrs. Pasternack (ph) to come in, and they want to talk to her.

HARRIS: Yes, and again here is the case, where Martha Stewart is saying that she didn't trade the stock, and I guess the trade was made, I guess the day after this decision was made, or the day before the decision was going to be announced about what was going to happen with this stock. And she was traveling with a woman who may have had access to the information.

Now, what is I also understand is you have also dug up some information about the broker in this case and who it is he may have been talking with.

KADLEC: This is just all part of the story. Merrill Lynch on Friday suspended Martha Stewart's broker, and the broker and Martha Stewart have said all along that there was an oral agreement to sell this stock if it fell below 60. But now Merrill Lynch has suspended the broker, and the apparent reason is they could find no evidence of such an agreement.

You know, a stop-loss order is not an unusual thing. It usually leaves some kind of a paper trial. In this case, they're saying it was an informal agreement between broker and client. But even at that, to execute the trade, there would be some sort of formal, written order somewhere, and you know, Merrill Lynch by suspending the broker has basically said, look, there was no agreement.

HARRIS: But here's what I interesting as I'm reading this report here that you put together, that broker we just saw the picture of, Peter Bacanovic, when he was asked about showing some proof of his deal that he had with Martha Stewart about trading the stock when it hit $60, he gave them something that was an undated document with that figure scribbled on the top of it. That seems a bit amateurish, doesn't it?

KADLEC: He has got a printout of her holdings with the figure $60 scribbled in next to ImClone. It's undated. Look, it's possible he was taking notes like that, but it's not proof, and that's all that he could come up with to substantiate the story. Again, it speaks volumes that Merrill has suspended him pending further information.

HARRIS: This story gets more and more interesting every single day, it seems. All right, Dan Kadlec, thanks much. We got to go on, because of breaking news we had today. Thanks for sticking around and being patient with us. And nice piece in "Time" magazine. Folks check that out. Take care. We'll talk to you later on.

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