Martha Stewart's Broker at Merrill Put on Leave

Merrill Lynch & Co. <MER.N> said on Friday it placed two employees on leave, including the stockbroker of Martha Stewart, the home decorating diva embroiled in alleged insider trading involving stock of troubled biotech firm ImClone.

Merrill, already smarting from a $100 million payment in May to settle a lawsuit over accusations company brokers misled investors, said it took the action after an internal probe raised questions about a client transaction.

The statement is the latest twist in a scandal involving stock sales of ImClone Systems Inc. <IMCL.O> by Stewart and the company's former chief executive, Samuel Waksal, who was indicted last week on charges of insider trading.

Investigators are examining whether Stewart, a friend of Waksal, may have been tipped off in December to sell her shares before negative news about ImClone caused its stock to drop.

Stewart has said repeatedly she had no inside information, and that she had agreed in late November with her broker, Peter Bacanovic, to sell her ImClone shares if they fell below $60.

In a statement, Merrill said it placed Bacanovic and Douglas Faneuil, a client associate, on "administrative leave pending further investigation." Merrill declined to say if the transaction in question involved Stewart's account.

In the aftermath of the Enron scandal, allegations of insider trading at ImClone have caught the attention of securities regulators and Congress alike.

Congressional Letter To Merrill

A congressional committee sent a letter demanding Merrill hand over numerous documents ahead of its scheduled interview with Bacanovic next week, including specific details about trades of ImClone stock in December, said Ken Johnson, a spokesman for the U.S. House Energy and Commerce Committee.

Johnson said on Friday he believed Merrill discovered discrepancies in statements by Bacanovic and Faneuil before they were to be interviewed by panel investigators next week.

"This action only confirms our suspicions that we're on the right track and getting very close to the truth," Johnson said. "Clearly, Peter Bacanovic has emerged as one of the key figures in our investigation" of ImClone and Waksal's family.

Johnson said Waksal's daughter, Aliza, sold some $2.5 million worth of ImClone stock on Dec. 27, a day before the U.S. Food and Drug Administration rejected the company's marketing application for its experimental cancer drug, Erbitux. Stewart also sold her shares the same day.

"We have been digging around for the past two weeks trying to determine if Bacanovic or his associate pulled the trigger on Aliza Waksal's trades," Johnson said.

Shares of New York-based ImClone have fallen nearly 85 percent since Dec. 28, the day the FDA rejected Erbitux.

Bacanovic was director of business development at New York-based ImClone from 1990 until 1992, according to an ImClone spokesman, who declined further comment.

There was no immediate comment from Stewart or her company, Martha Stewart Living Omnimedia Inc. <MSO.N>.

The lawmakers demanded Merrill turn over records of its trades of ImClone stock between Dec. 3 and Dec. 28, broken down by broker, time and whether it was an online trade, as well as clients of Bacanovic's who held ImClone shares as of Dec. 3.

Also requested were communications records to and from Bacanovic, a list of who assisted him with trades of ImClone stock and all records for Merrill telephone numbers he used, including mobile telephone numbers between Dec. 3 and Dec. 28.

The committee requested the information be turned over by Thursday.

Merrill said the information about the transaction came to its attention during the past 48 hours.

"There is some information that we discovered that we thought should be turned over the authorities for their evaluation," a Merrill spokesman told Reuters. "It is not to say that these guys necessarily did anything wrong."