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Martha Stewart May be Facing More Than Allegations of Insider Trading

Aired June 26, 2002 - 12:48   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.
KYRA PHILLIPS, CNN ANCHOR: Martha Stewart may be facing more than allegations of insider trading. "The Wall Street Journal" reports prosecutors want to know if the handicraft icon was involved in a cover-up.

CNN Financial News correspondent Louise Schiavone has been watching the Stewart case closely. She joins us now from Washington with the latest.

Louise, cover-up could mean obstruction of justice.

LOUISE SCHIAVONE, CNN CORRESPONDENT: That right, Kyra. There's nothing in "Martha Stewart Living" magazine to prepare a lifestyle guru for this. Sources close to the investigation say that the Department of Justice would be more interested in a possible obstruction of justice case against Martha Stewart than insider trading case by itself. Stewart's December 27 sale of close to 4,000 shares of IMClone stocks have been the subject of official inquiry for sometime. Congress spoke to her lawyers earlier this month.

Now Stewart's initial explanation for IMClone stocks sale,just a day before bottom fell out for key IMClone drug, has been called into question. She and her Merrill Lynch stock broker, Peter Bacanovic, have explained publicly and officially that the stocks were sold on a stop-loss order; that is if the value fell below roughly $60 a share, the shares would be sold.

But Congressman Jim Greenwood whose subcommittee leads the investigation of IMClone, says there may be holes in that story. He said -- quote -- "The attorneys for Merrill Lynch told me Friday that there were discrepancies in the accounts of the sales as presented by Martha Stewart's broker, Peter Bacanovic, and his assistant, Douglass Vaniel (ph).

Now, if a case could be made that Stewart and Bacanovic concocted a story to explain a legally flawed stock trade, they would be subject to obstruction of justice charges. Insider trading charges is somewhat tougher to prove, especially since the line between market rumors and insider information is so easily blurred.

Meanwhile, Merrill Lynch documents related to the IMClone sales are due at Greenwood's committee tomorrow. The panel is eager to talk to Bacanovic and his assistant, and is trying to work that out with their respective lawyers.

Greenwood says that immunity for either one would not be an option -- Kyra.

PHILLIPS: Louise, what are the implications of a cover-up for Martha Stewart, her business, for the consumers, the investor?

SCHIAVONE: Well, of course for Martha Stewart, we are seeing what is happening to her personal Omnimedia stock. The value has plunged. They used to trade at $19. Now it's down to $7 or $8. That's not a good thing. Of course it is another little bit of an earthquake for investors who are everyday and every way losing faith in the way stocks are traded.

PHILLIPS: All right, Louise Schiavone, thank you so much.

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