NEW YORK (CNN/Money) -
Federal prosecutors hope to persuade Martha Stewart's stock broker to testify against her on allegations that she lied to federal authorities about having insider information before her sale of ImClone stock, a newspaper reported Thursday.
Stewart and her broker, Merrill Lynch's Peter Bacanovic, contend that the homemaking guru sold nearly 4,000 shares of ImClone stock because of a pre-arranged sales plan, not because she had insider information that ImClone's application for approval of a cancer drug had been rejected.
But federal investigators became skeptical after Bacanovic's sales assistant, Douglas Faneuil, retracted his original statement in support of the story, saying instead he knew of no such plan, according to the Wall Street Journal. Faneuil told authorities he was pressured to corroborate Bacanovic's story.
A person close to the situation said the plan is to get one of the two, Stewart or Bacanovic, to testify against the other, the report said. If either is charged it likely will come after one has agreed to testify against the other in exchange for a lesser sentence, according to the Journal.
Investigators are looking into possible insider trading activities by Stewart and friend Samuel Waksal, ImClone CEO, among others, who sold shares in the company a day before ImClone announced that the Food and Drug Administration had rejected its application for approval of the cancer drug Erbitux.
Stewart and Bacanovic claim Stewart had a set plan to sell the shares if they dipped below $60.
Ken Johnson, a member of the congressional committee investigating the matter, said he expects to receive the records, e-mails and other documents written by Bacanovic and Fanueil between Dec. 26 and Dec. 28 by Friday, the report said. Stewart sold the stock Dec. 27.
Shares of Martha Stewart Living Omnimedia (MSO: Research, Estimates) fell $3.20 to $10.40 Wednesday.