House Panel Threatens to Subpoena Stewart Files

Congressional investigators Tuesday threatened to subpoena records of Martha Stewart as new doubts swirled about her stated reasons for selling ImClone Systems Inc. shares just ahead of bad news for the company.

The House Energy and Commerce Committee demanded that Stewart turn over e-mail and telephone records as well as reconsider her refusal to submit to an interview with the panel’s investigators.

Stewart is being investigated for possible insider trading for selling almost 4,000 shares of ImClone in December, before the company announced regulators had refused to review its cancer drug, Erbitux.

She has denied wrongdoing, citing a preexisting arrangement to sell the stock if it fell below $60.

The Wall Street Journal reported Tuesday that Merrill Lynch & Co. trading assistant Douglas Faneuil has thrown new doubt on the preexisting arrangement, telling authorities he called Stewart to warn her that ImClone’s then-Chief Executive Samuel D. Waksal was selling his shares.

“We are through asking nicely. Clearly someone has been lying to us and we’re going to find out who it is,” committee spokesman Ken Johnson said. “We’ll subpoena any documents she refuses to provide.”

Attempts to reach Stewart through her company, Martha Stewart Living Omnimedia Inc., or her lawyers for comment were not successful.

Federal officials have been investigating possible insider trading by Stewart and Waksal family members who sold shares before the company revealed that the Food and Drug Administration was refusing to review Erbitux, news that sent the shares plummeting.

“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 committee said in a letter to Stewart. “We sincerely hope and urge you to reconsider your position.”

Stewart’s lawyers told the committee in June that the shares were sold under the preexisting arrangement and she ordered the sale after a call from her broker at Merrill, Peter Bacanovic.

As a result, the House committee Tuesday demanded that Stewart turn over all communications to and from her e-mail accounts related to ImClone, Waksal or her account at Merrill from Dec. 1 to Jan. 9. Additionally, lawmakers sought Stewart’s phone records and those of her business manager, Heidi DeLuca, for the same time period, as well as any records in DeLuca’s possession related to ImClone.

Shares of Martha Stewart Living fell as low as $7.60 Tuesday but rebounded to close at $8.17, up 5 cents, on the New York Stock Exchange.