Martha Stewart Case Goes to Justice

Updated from 3:17 p.m. EDT

A congressional committee said Martha Stewart's story about the sale of ImClone (IMCL Quote) stock might not add up and turned her case over to the Justice Department for a decision on whether to pursue charges against her.

"The evidence that we have casts doubt on the truth of Martha Stewart's representations of the fact," said Rep. Billy Tauzin, chair of the House Energy and Commerce Committee, at a news conference.

Shares of Martha Stewart Living Omnimedia (MSO Quote) ended up $1.30, or 16.8%, to $9.05, following the news conference.

The gain is likely due to the fact that lawmakers did not produce hard evidence, legal experts said.

"By referring the matter to the Justice Department, they are intimating that further investigation is necessary," said Alan Bromberg, a securities law professor at Southern Methodist University. "But they are not saying that there is any violation."

The committee has been looking into whether or not Stewart had inside information when she sold ImClone, a day before the FDA refused to review an application for the company's cancer drug Erbitux.

Martha Stewart refused to be interviewed by the congressional committee and, through her lawyers, said that she would take the Fifth Amendment if subpoenaed by them to resolve the testimony.

Stewart's attorneys submitted two letters to Congress to set forth her record of events. According to them, Stewart and her broker, Peter Baconovic of Merrill Lynch, had a pre-existing arrangement to sell the stock if it fell below $60 a share. And when it did, Bacanovic called her that afternoon.

According to the committee members, Peter Baconovic didn't call her on the afternoon of Dec. 27, the day she sold the stock. Rather, he called her that morning, when the stock was trading above $60 and shortly after the daughter of Sam Waksal, then chief executive officer of Imclone, had sold her stock.

The congressmen said that Stewart initiated a call to her broker in the afternoon. But according to the panel, she never spoke to Bacanovic and instead talked to Doug Faneuil, his assistant, who has cooperated with investigators. Lawmakers said they might have been trading information beyond the stock price.

Congress has made no conclusions as to whether Stewart's activities constitute federal crime.

According to Bromberg, Congress could have come out with a much stronger message; the panel could have said there was a "probable violation" or "serious discrepancies" in the evidence. But it did not.

"I think the committee is sort of dropping a hot potato. It sounds like a pretty mild referral," said Bromberg.