Stewart Received ImClone Tip-Off, Friend Claims

23 February 2004

Martha Stewart told a close friend that she made her infamous ImClone stock sale after learning that the company's boss was dumping his shares, a court heard late last week.

In a testimony that could hurt the domestic diva's defence, longstanding friend Mariana Pasternak revealed that on December 30 2001, Stewart informed her that she knew ImClone ceo Sam Waksal and his daughter had been dumping their stock and that she had sold because the share price was falling. One day after Stewart's trade, ImClone's share price slumped on news one of the company's drugs had fallen foul of regulators.

Pasternak's evidence appears to back prosecutors' claims that Stewart decided to sell after being notified of Waksal's actions by Merrill Lynch broker Peter Bacanovic.

When the sale came to light as part of the investigation into Waksal's insider trading (for which he is now in jail), Stewart and Bacanovic claimed they had a pre-existing arrangement to sell when ImClone's share price fell below $60 (€47; £32). The government contests this explanation, and the pair face charges of conspiracy and obstruction of justice.

Pasternak's testimony also included a potentially damning quote from Stewart, who allegedly told her friend: "Isn't it nice to have brokers who tell you those things?" However, as this was said in a separate conversation at an unspecified time, the defence has branded it "absolutely meaningless".

Separately, prosecutors called Larry Stewart, chief forensic scientist for the US Secret Service, as a witness in a bid to undermine the $60 story.

The defence claims to have proof of the arrangement to sell in a hand-written Merrill Lynch document listing the lifestyle guru's shareholdings. By the ImClone entry is the notation "@60".

The government claims this document was forged, and Mr Stewart testified that the "@60" was written using a different ink to the rest of the entries. However, he admitted there was no way of knowing when the insertion had been made.

Data sourced from: The Wall Street Journal Online; additional content by WARC staff