Pressure mounts on domestic diva Martha Stewart

Legal and business pressures are mounting on Martha Stewart, as federal investigators step up probes into her alleged insider stock trading, prosecutors press her friends to testify against her and investors continue to batter her company's stock.

Prosecutors this week added one of Stewart's friends to those cooperating in their inquiry into Stewart's trades last year of ImClone Systems Inc. stock. This comes on top of reports that an assistant to Stewart's stock broker is negotiating a plea agreement in exchange for testimony against her.

As investigators for the Justice Department, Congress and the Securities and Exchange Commission close in on Stewart's inner circle, her media empire continues to suffer as its very public chief executive tries to maintain a low profile. Martha Stewart Living Omnimedia Inc. stock has lost two thirds of its value and, the longer the inquiry drags on, risks losing revenue as advertisers and customers grow wary of association with Stewart and her legal morass.

'Feeling pressure'

For once, Stewart seems to be in the wrong place at the wrong time, implicated in an insider trading scandal as prosecutors and the American public are hunting for corporate wrongdoers - whom they see as modern day robber barons.

"She is feeling the pressure," said Ira Lee Sorkin, a white collar criminal defense lawyer, former federal prosecutor and one-time director of the SEC's New York office. "This all has got to have an impact, even if you didn't do anything wrong. It's got to hurt you. It's got to have an emotional impact." So far, Stewart's strategy - crafted by an array of corporate lawyers from Washington and New York - is to lay low and avoid self-incrimination. Stewart has cut back on regular TV and radio appearances and limited herself to carefully worded public statements.

But although keeping out of the limelight, white-collar crime experts say, is a time-honored and often-successful legal practice of the rich and powerful, that tactic is uniquely difficult for Stewart, whose company's fortunes depend on her public relationship with American consumers.

Stewart, who has denied wrongdoing, has not been charged with any crime. She and her spokeswoman declined comment.

Sources close to the investigation say two key witnesses are cooperating with the Justice Department's probe into Stewart's activities both before and after she sold her 4,000 ImClone shares Dec. 27, the day before the Food and Drug Administration announced it would reject the company's application for a key cancer drug. The company's stock plunged on the news.

Among those being interviewed, a source close to the inquiry said, is Stewart friend Mariana Pasternak. She was flying with Stewart to a resort in Mexico when Stewart says she made several calls about ImClone's performance and eventually sold her shares.

Prosecutors are also working on a plea agreement with Douglas Faneuil, an assistant to Stewart's Merrill Lynch broker who first confirmed Stewart's statements about her ImClone trade, then recanted, the Wall Street Journal reported.

"If you look at the number of people who can provide information, clearly she has got a lot to worry about," said Christopher Bebel, a securities lawyer with Houston firm Shepherd, Smith & Bebel who previously worked as a federal prosecutor and SEC enforcement lawyer.

The number of potential witnesses also could help prosecutors prove inconsistencies in Stewart's statements, leading to possible obstruction of justice charges, legal experts say.

Tough to prove

Insider trading is often difficult to prove.

Earlier this week, after Stewart declined to be interviewed by a congressional committee investigating the ImClone matter, Rep. Bart Stupak, D-Mich., said on the "Today Show" that Stewart should be subpoenaed to answer questions about ImClone if she is not more forthcoming by Aug. 20.

"We've been trying for a month to interview her personally, but her lawyers have refused to let that happen," said Ken Johnson, spokesman for Rep. W.J. "Billy" Tauzin, R-La., who heads the House Energy and Commerce Committee, which is investigating the ImClone matter.