With three separate inquiries under way into Martha Stewart's sale of shares in ImClone Systems, prosecutors are narrowing their focus to the apparent lack of documentation of the sell order that Ms. Stewart says she and her stockbroker at Merrill Lynch agreed on weeks before the sale took place, officials close to the investigations said yesterday.
And as the stock price of Ms. Stewart's company, Martha Stewart Living Omnimedia, dipped to a 52-week low in trading yesterday, analysts and others began talking publicly about whether she might have to step aside as chief executive and chairwoman to concentrate on mounting a vigorous defense.
Merrill Lynch delivered documents yesterday to the Congressional committee that is looking into activities involving ImClone. The documents center on trades, e-mail messages and phone calls made from Dec. 26 to Dec. 28 by the broker, Peter Bacanovic, according to a committee spokesman, Ken Johnson.
In Manhattan, the United States attorney's office is conducting a criminal inquiry into ImClone trades, and the Securities and Exchange Commission is examining ImClone sales made in late December.
The S.E.C. accused ImClone's founder, Samuel D. Waksal, of insider trading earlier this month. Mr. Bacanovic is also Dr. Waksal's broker, as well as the broker for Dr. Waksal's two adult daughters.
Federal prosecutors have indicated that they have enough information to prosecute Aliza Waksal, Dr. Waksal's daughter, for insider trading, a person close to the situation said yesterday. And that has increased the pressure on Dr. Waksal to plead guilty and make a deal to save his daughter and other family members from prosecution. A lawyer for Dr. Waksal did not return a telephone call seeking comment.
If Ms. Stewart and Mr. Bacanovic misled federal investigators about the existence of a sell order, that could expose them to charges of obstruction of justice as well as insider trading.
Mr. Johnson would not say whether a sell order for Ms. Stewart's ImClone shares was among the documents the committee received yesterday. Under securities law, such orders must be entered into a broker's computer as they are made and must be recorded by time and day of entry. When the stock is sold, the time and day of the transaction are recorded as well.
A spokesman for Merrill, which was said earlier to have found evidence contradicting Ms. Stewart's word about a sell order, would say yesterday only that "our policy is to fully cooperate and always has been." Spokesmen for the S.E.C. and the United States attorney's office declined to comment.
Merrill suspended Mr. Bacanovic with pay last Friday after an internal investigation found what Merrill called "factual issues regarding a client transaction." His assistant, Douglas Faneuil, was also suspended. A person close to the investigation has said that the transaction was Ms. Stewart's sale of her ImClone shares one day before ImClone announced that its application for approval of a cancer drug had been rejected by the Food and Drug Administration. Following the announcement, made after the markets closed, the stock plunged more than $5 a share on Dec. 31, the next trading day.
Ms. Stewart has maintained that "several weeks" after the end of October, she made a plan with her broker to sell her ImClone shares when she participated in a tender offer from Bristol-Myers Squibb in which she sold 20 percent of her ImClone holdings.
The remaining 3,928 shares, she said in a public statement earlier this month, were to be sold if the share price fell below $60. "On Dec. 27, I returned a call from my broker advising me that ImClone had fallen below $60," she said in the statement. "I reiterated my instructions to sell the shares. The trade was promptly executed, at $58 a share."
People close to the investigations indicated yesterday that prosecutors might soon offer Mr. Bacanovic a deal in exchange for testifying against Ms. Stewart or Dr. Waksal, or both. "This tells us that the broker has significant information that will help seal the case against Martha Stewart and Sam Waksal," said Christopher Bebel, a former S.E.C. enforcement lawyer who is now a securities law expert with the firm of Shepherd, Smith & Bebel in Houston. Since brokers themselves do not execute trades, Mr. Bebel said, "he will probably also make it clear that he tipped the person at the Merrill trading desk, which will create enormous problems for Merrill."
The intense publicity surrounding the case appears to be working against the individuals involved, one lawyer outside the case said. "Unfortunately, this has been a media event, so it may cause an indictment where perhaps one might not have occurred," said Barry Slotnick, who has defended clients like Bernard Goetz, the subway gunman, and the real estate developer Abraham Hirschfeld, who is in prison for trying to have a business partner killed.
Some people close to the situation insist, however, that no one is negotiating a deal now. Both a lawyer for Ms. Waksal and a spokesman for Dr. Waksal said they had no comment.
Ms. Waksal, a 28-year-old actress, sold nearly $2.5 million in ImClone shares on Dec. 27, the day before ImClone announced that the F.D.A. had rejected its cancer drug application.
Under securities law, brokerage firms are responsible for having procedures to guard against insider trading, Mr. Bebel said. If a company does not follow its own procedures, it can be fined by the S.E.C., and if its trading desk operates on information that is found to be nonpublic, or "insider," information, the trades made in the wake of that information can be ruled illegal, he said.
Without a document proving that a standing sell order was in place, Ms. Stewart's broker would have more difficulty proving that no nonpublic information affected the trade, Mr. Bebel added. "I'll guarantee that was used against him to undercut his credibility, and that will help him decide to cooperate against his co-conspirators," he said.
A spokeswoman for Ms. Stewart would not comment yesterday on either the investigation or her status at Martha Stewart Living Omnimedia. But one management expert said Ms. Stewart was undoubtedly conferring closely with her board, a six-member group that includes her and Sharon Patrick, the president of Martha Stewart Living Omnimedia, about her future at the helm. Apart from Ms. Stewart, no board member has commented about the controversy.
"It appears she has the full confidence of the board," said Jim Drury, who leads an executive-search firm in Chicago. "But they haven't come to her defense yet. That's key. I think they are still trying to figure it out."
Among the outside directors is Arthur Martinez, the former chairman of Sears, Roebuck & Company. Mr. Martinez did not return a phone message seeking comment yesterday.
"If all the people at Merrill Lynch are lining up and saying there were no agreements, and she's the only one saying there was, the board will say to her, 'You're not going to be able to focus on all the issues a company has to address day in and day out,' " Mr. Drury said. Someone from the board or the company could be appointed chairman or interim chairman, he said, until the investigations come to a close.
George Nichols, an analyst for Morningstar in Chicago, said: "The allegations are tarnishing her image, and investors are fearing there will be more problems down the road. It's not that consumers are saying, 'I'm not going to buy her sheets anymore.' But advertisers account for about 40 percent of the company's revenues, and they flock to her wholesome image. And she's not looking so wholesome anymore."