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More Records Are Demanded in Inquiry on Martha Stewart

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More Records Are Demanded in Inquiry on Martha Stewart

By CONSTANCE L. HAYS

Saying they had tried without success to interview Martha Stewart, members of Congress looking into her sale of shares in ImClone Systems demanded additional records yesterday, including e-mail messages from Ms. Stewart and various records of a business manager for her company, Martha Stewart Living Omnimedia.

It is the first time that investigators for the House Energy and Commerce Committee have made a direct link of Ms. Stewart's stock sale, which she has called a personal matter, to the company that bears her name. A spokesman for the committee would not say why the business manager had attracted attention.

The chairman of the committee, Representative Billy Tauzin, Republican of Louisiana, sent a strongly worded letter to Ms. Stewart late in the afternoon, after the stock market had closed, asking her to provide the records by Aug. 20. The committee has sought an interview with her for several days, a spokesman said, but none has been scheduled. A lawyer for Ms. Stewart said her side had been seeking a delay.

"We have been informed that on advice of your counsel, you will not agree to be interviewed by the committee at this time under any condition," the letter from Representative Tauzin says. "We sincerely hope, and urge, you to reconsider your position."

At issue is her sale of nearly 4,000 shares of ImClone a day before the company announced that the Food and Drug Administration had rejected its application for approval of a promising cancer drug. The announcement sent the share price plummeting. Ms. Stewart, who said she and her stockbroker had agreed some time before to sell if the share price fell below $60, has called her trade completely lawful and said she had no improper information before she completed it.

Ms. Stewart's stockbroker and his assistant were suspended with pay by Merrill Lynch after an internal inquiry at the firm found no evidence of an agreement to sell at $60 a share.

"We want to assure ourselves that you have not attempted to mislead this committee with the intent to obstruct an investigation," said the letter signed by Mr. Tauzin.

The committee wants to clear up what the letter called "several developments raising questions about the accuracy of statements made" by Ms. Stewart's lawyers, who include teams from Wachtell, Lipton, Rosen & Katz and Arnold & Porter, as well as Robert G. Morvillo, a well-known criminal lawyer.

"Given the gravity of the matter, we need to obtain additional information expeditiously," the letter said, "while we await your final response to our request for an interview."

A lawyer for Ms. Stewart, Jeffrey H. Smith of Arnold & Porter, said in a letter sent to the committee late yesterday that his firm had asked to have any meeting of her and investigators delayed until at least after Congress's August recess.

"We are concerned that your staff may have misunderstood the information we conveyed to them last week," Mr. Smith wrote. "At that meeting, we advised your staff that we felt that an interview of Ms. Stewart was premature. We explained that we had not yet been informed by the government about any theories of their underlying facts with respect to Ms. Stewart's conduct."

Ms. Stewart, whose company has declined about 60 percent in market value since her name first emerged in connection with ImClone, issued a statement on June 12 saying that she had sold her shares after returning a call from her broker "advising me that ImClone had fallen below $60."

Ms. Stewart has also said that after her trade, she placed a call to ImClone's founder, Samuel D. Waksal, who is also her friend. She said that she did not reach him and that he did not call her back. Dr. Waksal, whose daughter and father sold ImClone shares on Dec. 27 and who tried unsuccessfully to sell 80,000 shares of ImClone himself, was arrested on June 12 and charged with insider trading. An indictment of Dr. Waksal could come as early as today, people close to the case said.

A similar account was provided in a letter to the committee on June 12 by James F. Fitzpatrick, another Arnold & Porter lawyer for Ms. Stewart. "On its face, the message confirms that Ms. Stewart knew nothing about what might be happening at ImClone," Mr. Fitzpatrick wrote, referring to her call to Dr. Waksal.

Since then, however, accounts have emerged that conflict with parts of Ms. Stewart's statement. Her broker's assistant, Douglas Faneuil, has told prosecutors from the United States attorney's office in Manhattan that he was ordered by the broker, Peter E. Bacanovic, to call her once Mr. Bacanovic knew that Dr. Waksal was trying to sell his own shares, a person briefed on the investigation has said.

Her phone log shows a call received on the morning of Dec. 27. The message says Mr. Bacanovic had called, advising her that ImClone was going to start trading lower.

But an examination of Mr. Bacanovic's cellphone records, as well as his office phone and that of Mr. Faneuil, and Mr. Bacanovic's home phone, shows no call made to Ms. Stewart's office that morning, said Ken Johnson, a spokesman for the energy and commerce committee. The committee's investigators interviewed Ms. Stewart's assistant, Ann E. Armstrong, weeks ago and received an affidavit from her saying that Mr. Bacanovic did call. But the absence of any record of that call has puzzled investigators for some time, Mr. Johnson said.

"Clearly someone has been lying to us," Mr. Johnson said, "and we are going to find out who it is."

The letter from Representative Tauzin also seeks phone records and records "relating to ImClone Systems" during the same period for Heidi DeLuca, identified as a business manager for Martha Stewart Living Omnimedia.

A spokeswoman for Ms. Stewart confirmed that Ms. DeLuca works for Martha Stewart Living Omnimedia but would not comment further.

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