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New Doubts About Martha's Stock Story

Comments reportedly made to federal investigators by a Merrill Lynch employee about Martha Stewart's sale of ImClone shares are shedding doubts on her explanation of the timing of that sale, according to media reports.

A story in Tuesday's online edition of the Wall Street Journal say the Merrill trading assistant, Douglas Faneuil, has told Merrill Lynch officials and federal investigators that Stewart sold the shares after he told her, at the request of his boss, to do so because Sam Waksal -- chief executive of ImClone at the time -- and members of his family also were selling their stock, according to people close to the matter.

Faneuil has been cooperating with federal investigators looking at possible insider-trading violations by Stewart and members of Waksal's family who sold ImClone shares just before the company released news that sent the stock diving.

Stewart has said that she had a previous arrangement with her broker, Peter Bacanovic, to sell the stock if the price dipped below $60. She has denied any wrongoding.

Representatives for Stewart and her company, Martha Stewart Living Omnimedia , could not be reached for comment on the report.

Waksal was arrested on charges of insider trading in June. He and members of his family sold a reported $10 million worth of shares of ImClone stock after he learned that the FDA was expected to refuse the company's application to market its anti-cancer drug Erbitux.

Waksal has denied doing anything wrong. According to various media reports, Waksal is negotiating with prosecutors for a possible plea agreement.

Stewart came under scrutiny when it became known that she sold about 4,000 shares of ImClone in late December, the day before the stock fell on public news that the biotech firm's application for the drug had been rejected.

If Faneuil's version of the events leading up to the sale of Stewart's ImClone shares bear weight with prosecutors, it could mean more problems for Stewart.

Federal investigators have widened their probe of Stewart's actions beyond insider trading to include possible obstruction of justice and making false statements about why she sold, the Journal reported, citing people familiar with the matter. Faneuil's account could undermine Stewart's explanation.

Faneuil originally backed up Stewart and Bacanovic's claim that Stewart had a prearranged agreement to sell the ImClone shares if they went below $60. But, the Journal reports, Faneuil said during further questioning in recent weeks that he made up the story after being pressured by Bacanovic, and that he told Stewart to sell at Bacanovic's request.

The Journal said Bacanovic's lawyer declined to comment. Merrill has put Bacanovic and Faneuil on paid administrative leave.

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