Martha Stewart: Goose Still Cooking

In a rare moment of discretion this week, Congress decided against issuing a subpoena to Martha Stewart, ordering her to testify on the sale of shares in the drugs firm ImClone. The committee leading the investigation admitted it would have made great television to have Ms Stewart on the stand refusing to answer any questions, but would achieve little else. Ms Stewart, said the committee, is a "sideshow".

When compared with the billions of dollars allegedly defrauded at WorldCom and the hundreds of millions that prosecutors claim Tyco executives pilfered, Martha Stewart is small fry. But interest has been intense.

The committee has found itself in a catch-22. Pursue her to the end and face accusations from the media that she is being used as a scapegoat because of her celebrity, or ease off and face allegations that she is being let off for the same reasons.

The wholesome domestic diva is under investigation for selling just $230,000 (about £148,000) worth of shares in ImClone, formerly run by her close friend Sam Waksal. Was it simply a coincidence that she sold the day before the rejection of a key cancer-fighting drug by regulators caused the share price to slump? Or had she been given inside information?

Mr Waksal has already been charged with allegedly tipping off family members who sold $10m of shares on the same day.

Ambushed by a presenter on a morning television show where she has a regular slot, Ms Stewart now famously remarked that she would rather "focus on the salad" she was making.

Faced with her intransigence, the congressional committee leading the investigation into ImClone decided this week that it had had enough. Instead of issuing a subpoena, the committee decided to hand the matter over to the justice department. The department, already investigating the insider dealing allegations, now has the additional job of establishing whether she lied to Congress, something that potentially carries another five-year prison term.

The house energy and commerce committee found a relatively elegant solution. While withdrawing from the limelight, it handed over an eight-page letter to the attorney general, John Ashcroft, detailing discrepancies between her story and evidence gathered elsewhere. The chairman of the committee, Billy Tauzin, said he was concerned that she might have made "materially false representations" in letters sent through her lawyers.

Ms Stewart maintains that she and her stockbroker had agreed to sell the ImClone stock if it fell below $60 a share. She has also said that she spoke to her broker, Peter Bacanovic, on the afternoon of December 27 and sold the shares with no inside information.

Both the broker and his assistant, Douglas Faneuil, were suspended from Merrill Lynch in the summer after an internal investigation failed to turn up evidence of the agreement. The letter to Mr Ashcroft outlines a series of "discrepancies, ambiguities and suspicious communications".

Ms Stewart claims she received a call from Mr Bacanovic at 1.41pm alerting her to the fall below $60. But according to an affidavit from her assistant, Mr Bacanovic called Ms Stewart's office at around 11am when the shares were still above $60 and left the message: "Peter Bacanovic thinks ImClone is going to start trading downward." The message was left after Mr Bacanovic's office had sold shares for Aliza Waksal, Mr Waksal's daughter.

According to press reports, it was Mr Faneuil who later spoke to Ms Stewart, not Mr Bacanovic. Mr Faneuil is said to have admitted that he told Ms Stewart about the Waksal family sales prior to her selling her ImClone shares. Following the sale of Ms Waksal's shares, phone records show that Mr Faneuil called ImClone's head office and then Mr Bacanovic's mobile phone - he was out of the office at the time.

It was during this time, Congress contends, that Mr Bacanovic left his cryptic message with Ms Stewart's office. At 1.14pm he sent Mr Faneuil an email asking, "Has news come out yet? Let me know." Mr Faneuil responded: "Noting (sic) yet. I'll let you know. No call from Martha either."

The letter to the justice department also details a series of calls between Mr Waksal and Ms Stewart in late December, including a message from Ms Stewart giving her contact details while in Mexico. It remains unclear whether the referral to the justice department will result in any formal charges against Ms Stewart.

Whether charges are brought or not the damage to her business has already been profound. The company, Martha Stewart Living Omnimedia, which has divisions in publishing, home products and broadcasting, recently warned that the ongoing furore was beginning to hurt profits. Advertisers in the US are highly skittish when they whiff scandal and consumers - large numbers of who have direct investments in the stock market - understand the implications of insider trading.

Shares in the company have drifted downward by more than 50% since her name was first attached to the scandal in June. Ms Stewart may now be regretting the decision to focus on the salad instead of speaking more openly in an attempt to dispel the innuendo.

When she floated her company on the stock market, the company's prospectus inviting investors to buy shares warned that the "business would be adversely affected if Martha Stewart's public image or reputation were to be tarnished."

It seemed so unlikely at the time, but has proven prescient.