Martha Stewart Quits NYSE Board

(CBS)  Martha Stewart resigned Thursday from the board of the New York Stock Exchange, officials said.

The home decorating diva is under investigation by the Justice Department for her sale of nearly 4,000 shares of ImClone Systems Inc. shares a day before the stock began to plummet on negative regulatory news.

The announcement came a day after Douglas Faneuil, an assistant to Stewart's stockbroker, pleaded guilty to a misdemeanor charge of receiving money and other valuables for keeping quiet about Stewart's sale of ImClone shares last December.

"We are saddened to lose Martha Stewart, who has built a brand and a company admired around the word," said Dick Grasso, chairman and CEO of the exchange. "Our board will miss Ms. Stewart's counsel and insight."

A spokeswoman for Stewart had no immediate comment. A spokeswoman for her company, Martha Stewart Living Omnimedia Inc., said, "The decision to join or leave the board of the NYSE is a personal one for Ms. Stewart."

Stewart had joined the NYSE's board of directors in June 2002 and was one of 27 members. Her term was set to expire in 2003.

Faneuil, 26, cut a deal with prosecutors signaling signals further legal trouble for Stewart.

Faneuil guilty plea was part of a deal to testify against Stewart and others who might be charged in connection with sales of ImClone shares last December, just before the stock price plunged on news the Food and Drug Administration would not review its highly touted cancer drug, Erbitux.

In court, Faneuil said that during his interviews with law enforcement officials, "I did not truthfully reveal everything I knew about the actions of my immediate supervisor and the true reasons for the 'tippee's' sales."

Merrill Lynch, where Faneuil worked, handled Stewart's sale of nearly 4,000 ImClone shares.

Faneuil reportedly had accepted Knicks tickets in exchange for hiding his knowledge from investigators of the alleged insider stock deal involving Stewart. Court papers said he received an extra week of vacation and a free airline ticket.

Faneuil's plea "is designed to convince Martha Stewart to lay down her sword and admit that she traded on inside information," said Seth Taube, a former Securities and Exchange Commission lawyer now in private practice.

Stewart's name did not appear in the criminal information filed Wednesday before the magistrate in Manhattan federal court.

Prosecutors are trying to determine if Stewart was tipped off by her friend Sam Waksal, ImClone's founder and ex-CEO, or her Merrill Lynch broker, Peter Bacanovic, who was Faneuil's boss.

In court papers, prosecutors said the tip, either directly or indirectly, came from Bacanovic. They also said that Bacanovic on Dec. 27 told a client, referred to in the papers as the "tippee," that Waksal was trying to sell all of the ImClone stock that he held at Merrill Lynch.

"The tippee then sold all of the tippee's shares of ImClone stock, approximately 3,928 shares, yielding proceeds of approximately $228,000," the court papers said.

Waksal was indicted in August for allegedly tipping off family members to dump millions of dollars worth of ImClone stock before the bad news about Erbitux hit the markets. He pleaded innocent to the charges.

Stewart, who has previously denied any wrongdoing, has said she had a standing order with Bacanovic to sell the ImClone shares if they fell below $60. Faneuil, 26, initially gave investigators the same account but later changed his story and said there had been no such order.

Stewart spoke by phone with Faneuil the day her sale was made, investigators say.

Faneuil pleaded guilty to receiving money or other valuables "as consideration for not informing." The misdemeanor charge carries a maximum penalty of a year in prison, but under the plea deal, Faneuil likely will get probation.

Faneuil's cooperation increases the pressure on Bacanovic to tell everything he knows about any insider information that spurred sudden stock sales by members of Waksal's family and others, including Stewart.