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Congressmen Address Martha Stewart Affair

Aired September 10, 2002 - 14:34   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


KYRA PHILLIPS, CNN ANCHOR: It's D-Day for America's best-known homemaker, congressional investigators looking into Martha's mess right ahead.
Actually, I'm told we're going to go right to the news conference and listen in right now.

(JOINED IN PROGRESS)

REP. BILLY TAUZIN (R), LOUISIANA: ... any U.S. government authority, including the committees of Congress, can be imprisoned for up to five years and/or fined if prosecuted and convicted.

Although Martha Stewart repeatedly refused to be interviewed by committee staff, her attorneys, acting on her behalf and in response to committee inquiries, sent the committee two letters that set forth Ms. Stewart's version of events surrounding her sale of ImClone stock on December 27th, 2001, one day before the FDA rejected ImClone's application for its cancer treatment drug Erbitux.

In pertinent part, Ms. Stewart's letters to the committee represented that: one, she and her broker, Mr. Bacanovic, had a preexisting understanding that she would sell her shares if they fell below $60 per share; two, that she spoke with Mr. Bacanovic in the afternoon of December 27th and that he told her that ImClone shares had fallen below the price, so they agreed to sell them solely for that reason; and, three, she did not have any nonpublic information about ImClone or the pending FDA action prior to the sale.

However, other evidence obtained by the committee casts substantial doubt on the truth of these representations.

Specifically, the evidence indicates that: one, Ms. Stewart's broker did not call her on the afternoon of the 27th, but rather called her office that morning when ImClone shares were trading clearly at or above the $60 level and shortly after her broker had just sold all of ImClone shares held by Sam Waksal's daughter; two, that she initiated the afternoon call with her broker, not the other way around; three, that she never spoke with her broker, Mr. Bacanovic, on that day, but rather spoke with his assistant, Douglas Faneuil, who reportedly has been cooperating with prosecutors; and, four, both Ms. Stewart and her broker may have been trading some news, re ImClone, on that day beyond the share price.

This evidence raises a serious question as to whether Ms. Stewart's accounts were false, misleading and designed to conceal material facts. Our committee emphasizes that it has been prevented from resolving many of these questions surrounding these discrepancies, ambiguities and suspicious communications outlined in the referral due to the refusal of Ms. Stewart and others to be interviewed by the committee, by the staff and by her assertion through her attorney that she would plead the Fifth Amendment if subpoenaed to testify. The committee also emphasizes that it has made no conclusion as to whether Ms. Stewart's conduct constitutes a federal crime. In short, the committee, in making this referral to the Justice Department, is suggesting strongly that the Justice Department should conduct an investigation into the questions of whether or not the Federal False Statements Act has been violated in this matter.

We should secondly report that the ImClone investigations goes on. The Martha Stewart matter in regard to this investigation may now be referred to the Justice Department for further action, but our committee continues to look into the questions of how Erbitux was handled under the FDA procedures and how those procedures may be improved or how we might even consider changes in that procedure to make sure that circumstances like the one we discovered do not obtain again.

Let me remind you why we got into this matter to begin with. Erbitux is still a very promising cancer drug. There are many people who were hoping that the fast-track procedure would produce an approval of this drug so that it might be used to save and extend the lives of many of our citizens suffering with this form of cancer. Unfortunately, the process failed in this case and a very promising drug was not handled properly.

It may yet be approved. It may yet be available at some future date. But the process designed by Congress to ensure that promising drugs like Erbitux were properly reviewed, properly tested and approved as quickly as possible for the life-saving capacities of those drugs failed us in this case.

Secondly, the process by which Congress established the fast- track review obviously allowed, in this case, promoters of the company and the drug to make substantial gains in the stock market while the process did not allow the government to speak about the failures of the review process as it was ongoing. We suspect that improvements should and can be made by which public companies traded in United States stock markets, who are nevertheless going through this process, might not be allowed to do what has occurred in the ImClone matter.

We continue to investigate that. And the subcommittee chairman, Mr. Greenwood, may in fact be announcing very shortly further hearings on the ImClone matter.

Let me finally thank Jim Greenwood and our investigators for their continuing good work. If you will note from the letter we are now making available to you, by which we have referred this matter to the Justice Department, it is signed, again, in a bipartisan fashion, by Mr. Dingell, Mr. Deutsch, Mr. Greenwood and myself. Our committee continues to work in a bipartisan fashion to see that we can find out everything that went wrong in this ImClone matter and to make proper suggestions to the FDA and potential changes in the law to make sure this doesn't happen again.

I want to thank Jim for the way in which he's conducted this investigation and the way he continues to conduct this investigation and others in the corporate responsibility matters and to thank our investigators for their hard work. It is with disappointment we announce, obviously, that we have come to the end of the road in regard to the matter dealing with Martha Stewart and that it is now up to the Justice Department to make judgments in the matter.

The letter of referral is self-explanatory, and we have released it, along with supporting documentation, including documents the committee has recovered or obtained which substantiate the ambiguities and uncertainties and discrepancies to which the referral letter to the Justice Department refers.

Jim Greenwood?

REP. JIM GREENWOOD (R), PENNSYLVANIA: The chairman has descried the matter pretty well. Let me see if I can add a little further context to it, because I think it's an interesting phenomena that the media sends 13 television cameras here and has great interest in this and then frequently asks us why we're so interested in this issue. So let me put it in context.

The Oversight and Investigation Subcommittee has had an enormously busy seven and a half months. We began the first serious inquiry into Enron. Our hearings into Arthur Andersen we think led to the Justice Department's action with regard to Arthur Andersen and certainly the Justice Department's continued actions with regard to Enron.

The investigation into ImClone was really all about this important question.

GREENWOOD: And that is, how should the FDA handle information about a product that's being hyped for the purpose of attracting investment, and yet knowing that the information that they share with the company could potentially be used for insider trading and is the fast-track system working?

None of us had any interest or awareness of Martha Stewart or anyone else at that time. We simply went on with our investigation. Ms. Stewart's name turned up because of what we had learned about the trading by Dr. Waksal -- or Mr. Waksal and his family members and others. We needed to make an inquiry as to whether this trade was the result of inside information, as well.

Of course, we could have, had we wanted to create a furor, a lot media interest, invited Ms. Stewart to our hearing on June the 13th. We choose not to do that. We didn't want to make a media circus of this.

We asked for information. We received a letter from her attorneys that clearly laid out her innocence, in their words. We then have a responsibility, when we receive a document like that, to verify it to make sure that we're getting accurate information. Because, A, some of the information in that letter did not seem to coincide with other facts that we gathered in the course of our investigation; and because, B, Ms. Stewart choose not to come in and clarify these matters for us, we were in a position where we had to take action of one kind or another.

We negotiated -- and this is important -- we negotiated up until 2 o'clock this afternoon with her attorneys to have Ms. Stewart come in and either grant an interview, and we agreed that that interview would not be advanced notice to the press so that she wouldn't face Paparazzi, that we could have a quiet off-campus interview, and that was declined. We offered the opportunity for her to testify all the way up until 2 o'clock this afternoon.

Late this afternoon we received a letter from her attorneys, Arnold and Porter, signed by James Fitzpatrick, that said -- addressed to Mr. Tauzin and myself: "Dear Mr. Chairman, this will confirm that we have advised you that if Martha Stewart were to be subpoenaed, her attorneys would advise her that, in light of the pending investigations in New York and our inability at this time to obtain access to essential legal and factual information, she should not testify.

"As you know, we have also advised you that if the Congress were to defer her testimony until the conclusion of the current investigation, she would almost certainly be available for testimony."

We need to conclude our investigation sooner rather than later, and so we were forced to take this action. But I think it's important that it be understood that this is a sideshow in this investigation of ImClone. It is a sideshow in the investigation of corporate responsibility. Is it a sideshow in the investigation of how FDA does its work?

And we think that the decision by the FDA last Friday to change its approval process to make sure that biological products are now reviewed on the pharmaceutical side of the agency, because it's better track record in handling this information, is an important result of our investigation. And in the long run will far out shadow this celebrity status of Ms. Stewart.

TAUZIN: Thank you, Jim.

And one final comment, so we can eliminate perhaps a question on it. In addition to the letter that was sent to us today by Martha Stewart's attorneys advising us they would advise her not to testify, they have confirmed, again, orally and they will not dispute the fact they have told us that Martha Stewart would, in fact, take the Fifth Amendment if she were subpoenaed to involuntarily testify before the committee.

That being the case, again, we are constrained to this point, unable to resolve these inconsistencies, to make this referral to the Justice Department. The letter that we have distributed to you has been forward just within the half-hour to the Justice Department, along with the attachments we've released to the public.

Are there any questions?

QUESTION: Mr. Chairman, you decided not to subpoena Martha Stewart. How do you distinguish her from a Bernie Ebbers or a Ken Lay or some of the others who, in fact, were called before the committee and forced to take the Fifth in public?

TAUZIN: Well, our committee, as you know, did not subpoena Ken Lay nor Bernie Ebbers. Our committee is focused on principles whom we thought were central to the issues of corporate irresponsibility and the matters that were investigated by Mr. Jim Greenwood and our Energy and Commerce Subcommittee of Oversight and Investigations.

The fact is that Martha Stewart is a collateral issue here. Our central inquiry is the ImClone matter, the failure of the FDA process, the awful fact that Erbitux, perhaps, could be saving lives today, were it not for the failure of the company and the FDA to resolve the review properly and to conduct that review properly, and the collateral issues of what may have happened to people who invested in that stock while this process was ongoing.

Again, because it's a collateral matter and because it is very clear now Martha Stewart would not either voluntarily be interviewed, nor would she testify before this committee, will take advantage of her Fifth Amendment privileges, we're at the end of the road as far as what we can find out about that collateral matter. And we believe now that, faced with these inconsistencies that we cannot resolve, that it's properly a matter for the Justice Department to pursue. We've taken it as far as we properly should and we should now focus on the other more important issues of the ImClone investigation.

QUESTION: Mr. Chairman, given all the numbers of white collar investigations -- either chairman -- given all the investigations that are under way now by the federal prosecutors in New York in the Justice Department, what likelihood do you think there is that they will actually pursue the crime of having misrepresented facts at the Congress?

TAUZIN: I cannot comment on the likelihood of that. I can only tell you that, under the proceedings of our committee, by which we most certainly must protect the credibility of our investigations and the credibility of our process, when we find a matter that indicates that the Justice Department should, in fact, look into it to make sure that our process has not been thwarted by false and misleading statements, that we do so in a bipartisan fashion and that we hope and expect the Justice Department will take our letter seriously. That's as far as I can take it for you.

QUESTION: (OFF-MIKE)

TAUZIN: Again, our investigation was not about insider trading charges. As Mr. Greenwood pointed out, on June 13th we offered Ms. Stewart and her attorneys the opportunity to explain to us what happened because her name came up on the logs of the president of the corporation as to what happened in the matter, and had there been no inconsistencies in the response we got by mail that would had been the end of it. Our concern from that day forward was not so much the questions of whether insider trading may have occurred -- that's a matter, again, for the Justice Department to explore and to decide -- our concern was the integrity of our process.

If we were going to excuse a witness central to an inquiry on the basis of them sending a letter explaining the facts, we would hope and expect, and we must require that when parties do so, that they be as honest and complete in that correspondence as possible. Because questions have been raised now about that very central fact, we have made this referral to the Justice Department.

Mr. Greenwood?

GREENWOOD: Let me just, in response to an earlier question, make it clear, when we brought Mr. Duncan forward on the Arthur Andersen case, it was because he was central to do the deal. He was central to the crimes that may have been committed. When we brought Mr. Kopper, Mr. Fastow, Mr. Skilling together, these were central players in major corporate scandals.

With regard to Ms. Stewart, it was the Waksal brothers, Sam and Harlan, who put together that company and put together that deal. She's a sideshow. She's a collateral issue. That doesn't make these charges less series, but it meant that bringing her forward to our committee and putting her under oath was not going to yield any new information about Erbitux, about ImClone, about the FDA. And so there was nothing that she could testify that would be helpful to us except her own personal transaction. And we think that's a matter that needs to be investigated by Justice.

And as to whether Justice will do it, I have every reason to believe that the Justice Department is interested in this case.

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