Stewart stock spikes as Justice takes case

Tauzin, solons 'deeply skeptical'

WASHINGTON — Capitol Hill lawmakers, frustrated by a lack of cooperation from media mogul Martha Stewart, Tuesday asked the U.S. Dept. of Justice to launch a criminal probe into whether she lied to congressional investigators probing insider trading allegations.

Although Rep. W.J. “Billy” Tauzin (R-La.) said he and other politicos were “deeply skeptical” about Stewart’s truthfulness as they referred the matter to the Justice Department, Wall Street embraced the news as the end of a drawn-out congressional confrontation with Stewart and sent stock in her company, Martha Stewart Living Omnimedia, soaring nearly 17% to close at $9.05.

Stewart repeatedly snubbed requests to appear on Capitol Hill to answer questions about her sale of 4,000 shares of ImClone Systems on Dec. 27 — one day before the company was turned down by the Food and Drug Administration for a much-anticipated cancer drug.

Tauzin had wanted Stewart to testify and was clearly frustrated that he was thwarted, and left only with the option of making the referral to the DOJ as the conclusion of his inquiry.

Stewart, who has insisted the sale was above board, presides over a media empire that distributes domestic arts content through books, magazines, television, radio and the Internet. The company is also heavily involved in merchandising.

Analysts had expected the congressional investigation of Stewart to take a tougher stand than a simple referral to the DOJ, hence the spike in Omnimedia’s stock. However, the stock price is still down 52% from $19.01 a share on June 6, when her ImClone trading was first revealed.

Also, there could have been a sympathy backlash, with Tauzin coming under a certain amount of criticism for releasing the findings on the eve of Sept. 11.

Tauzin, shrugging off such speculation, said lying to Congress is a very serious charge and that the request for the DOJ to launch a criminal investigation is no small matter.

The House Commerce Committee, chaired by Tauzin, had given Stewart until 2 p.m. on Tuesday to clear up several questions. When the deadline wasn’t met, Tauzin joined a bipartisan group of lawmakers in announcing the referral to the DOJ.

Tauzin said lying to Congress could carry a five-year prison term, as well as substantial fines.

Stewart’s attorneys issued a statement saying their client has cooperated fully with the congressional committee, but that any open questions about her stock sale should be addressed by the general ImClone investigations already being conducted by the DOJ and the Securities and Exchange Commission.

Stewart’s lawyers also took a shot at Tauzin, who has publicly taken her to task throughout the summer.

“Unfortunately, some have prejudged this matter. During the past several months, Ms. Stewart has been the subject of numerous leaks, unfair innuendo and thunderous headlines, none of which merit reply,” Stewart’s attorneys said in the statement.

Martha Stewart Living Omnimedia, whose businesses are inextricably connected with the persona of its CEO, suffered a huge hit after the controversy erupted over the sale of Stewart’s stake in ImClone, run until a few weeks ago by Samuel Waksal, a personal friend.

Waksal has been charged with trying to dump stock in ImClone before the FDA decision was made public, as well as allegedly tipping off family members. He has pleaded not guilty to charges of securities and bank fraud.

Congressional investigators wanted to know if Stewart or her broker, Peter Baconovic of Merrill Lynch, communicated with Waksal about the pending FDA decision. They also want to know if Baconovic — who was also Waksal’s broker — told Stewart about Waksal’s stock sales.

Stewart has said she had no inside information that the FDA was about to turn down ImClone’s Erbitux. Rather, she had a standing instruction with her broker to sell the stock if the price fell below $60.

But Tauzin said documents provided by Stewart conflicted with other information provided the committee, and that the decision to sell may have come before the stock fell below $60 in the afternoon of Dec. 27.

“Because Ms. Stewart repeatedly has refused to be interviewed by committee staff — and her attorneys have stated that she would invoke the Fifth Amendment right not to testify if subpoenaed to a committee — the committee has been prevented from attempting to resolve many of the discrepancies, ambiguities and suspicious communications,” stated the lawmakers in their referral to the DOJ.

The letter was signed by Tauzin, Rep. John Dingell (D-Mich.), Rep. James Greenwood (R-Pa.) and Rep. Peter Deutsch (D-Fla.).

The DOJ isn’t required to heed a congressional request.

“As with all such requests, this one will be reviewed,” DOJ spokesman Mark Corallo said.

(Variety wire services contributed to this report.)

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