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The Honolulu Advertiser
Posted on: Thursday, February 5, 2004

Stewart 'sell' order recounted

By Erin McClam
Associated Press

Martha Stewart arrives at court in New York to hear the star witness' testimony.

Associated Press

NEW YORK — An "extremely upset" Martha Stewart ordered all her ImClone Systems stock sold after she learned that the company founder was dumping his own shares, the prosecution's star witness testified yesterday at Stewart's trial.

Douglas Faneuil, a former assistant at Merrill Lynch & Co., said he passed along the tip to Stewart on orders from her broker, Peter Bacanovic, when she called on Dec. 27, 2001.

"Peter thought you might like to act on the information that Sam is selling all of his shares," Faneuil said he told Stewart, referring to ImClone founder Sam Waksal.

Faneuil said he quoted ImClone's stock price, and Stewart eventually declared: "I want to sell."

Faneuil placed the sell order, netting Stewart about $228,000.

The Food and Drug Administration issued a negative report the next day about ImClone's experimental cancer drug, sending the stock down 18 percent. Stewart saved about $50,000 by getting out when she did.

Waksal is serving a seven-year prison sentence for securities fraud and other charges.

Faneuil, 28, described a frantic effort by Bacanovic in the months after the sale to pressure him into supporting two separate cover stories. He said the broker offered him a week's vacation and a trip to Argentina in early 2002.

He said Bacanovic first told him the reason for the sale was to generate tax losses to offset capital-gains taxes, then claimed he and Stewart had a pre-existing agreement to sell the stock when it fell to $60.

But Faneuil said even Stewart's financial assistant questioned the tax-loss justification because the stock was sold at a gain for Stewart. She had sold many other stocks earlier in December at a loss, for tax purposes.

In January 2002, as the investigation into Stewart's stock sale was growing, Faneuil described the explanation that an animated Bacanovic gave him in a discussion in Bacanovic's office.

Faneuil said Bacanovic told him: "Listen, I've spoken to Martha, I met with her, and everyone's telling the same story. This was a $60 stop-loss order. That was the reason for her sale. We're all on the same page, and it's the truth. It's a true story."

While Faneuil testified, Stewart glanced back and forth at him and prosecutor Karen Patton Seymour. Stewart also took notes on a legal pad.

Bacanovic made notes as well and appeared to scoff occasionally when Faneuil's account encompassed activity that included him.

Faneuil's testimony is the centerpiece of the government's case against Stewart and Bacanovic, who are accused of repeatedly lying to investigators by insisting they had struck the $60 arrangement before the sale.

Stewart faces five counts carrying a potential prison term of 30 years. Bacanovic faces five counts carrying 25 years. Both would likely get lighter sentences if convicted.

Faneuil originally supported Stewart and Bacanovic's version, but struck a deal with the government in June 2002 to plead guilty to a misdemeanor and cooperate with prosecutors.

As cross-examination began, Faneuil admitted he has used cocaine, marijuana and the party drugs Ecstasy and ketamine, sometimes called Special K.

He also acknowledged that Bacanovic never "explicitly" directed him to lie.