Witness tells of stock tip to Stewart
By Erin McClam
Associated Press
NEW YORK — A former brokerage assistant testified yesterday that his boss ordered him to pass a secret tip to Martha Stewart that led the style maven to trigger her well-timed sale of ImClone Systems stock.
Douglas Faneuil, the government's star witness, said broker Peter Bacanovic ordered him to alert Stewart on Dec. 27, 2001, that the family of ImClone founder Sam Waksal was dumping its shares.
FANEUIL
Faneuil said he told Bacanovic, who was on vacation in Florida, about a flurry of selling by the Waksals that morning. He said Bacanovic blurted out: "Oh, my God, get Martha on the phone."
Waksal later admitted that he had advance knowledge that the Food and Drug Administration was about to refuse to review an ImClone drug application — a decision that sent the stock on a sharp decline. Waksal is now serving a prison term of more than seven years.
Faneuil, who was working Bacanovic's desk at Merrill Lynch & Co. on Dec. 27, testified that he took calls before 10 a.m. from Waksal's accountant and Waksal's two daughters — all demanding that Faneuil sell their ImClone shares.
He said he spoke to Bacanovic, who left a message for Stewart and then ordered Faneuil to tell her of the Waksal sell-off when she called back. Faneuil said he asked his boss whether passing the tip would be appropriate.
"Of course. You must," he said Bacanovic replied. "That's the whole point."
Stewart was unavailable and on her way to a vacation in Mexico. But she called later in the day and ordered her entire stable of 3,928 shares of ImClone to be sold, the prosecution contends.
The government claims Stewart and Bacanovic cooked up a false story and repeatedly lied to investigators, saying they had a pre-existing arrangement to sell ImClone when it fell to $60 per share.
Stewart is charged with obstruction of justice, securities fraud and other counts that carry a total of 30 years of prison time. Bacanovic faces up to 25 years if convicted of perjury, conspiracy and other charges.
Both likely would get lighter sentences under federal guidelines if convicted.
The testimony of Faneuil, a lanky 28-year-old who was soft-spoken in his answers on the stand, is the most critical piece of the puzzle that the government says implicates Stewart.
His testimony was delayed by five days after the judge penalized prosecutors for being too slow in turning over an FBI document that defense attorneys say raises questions about Faneuil's credibility.
When court recessed yesterday, Faneuil had not reached the point in his testimony where he was expected to say he actually told Stewart the Waksals were selling. Although Faneuil testified in general terms about improperly passing information from one client to another, details of his exchange with Stewart are expected to come out this morning.
Lawyers for Bacanovic and Stewart are carefully planning a strategy for Faneuil's cross-examination, which could begin as early as today.
Faneuil initially had supported Bacanovic's and Stewart's story, but changed his story in a 2002 plea deal with prosecutors.
The defense is expected to argue that Faneuil was willing to lie to the government to get out of prosecution for his involvement in the ImClone sale.
