'Oh my god, get Martha on the phone'
A young brokerage assistant testified that his boss ordered him to pass a secret tip to Martha Stewart that led the style guru to trigger her well-timed sale of shares.
Douglas Faneuil, the government’s star witness in the New York trial of America’s domestic goddess, said broker Peter Bacanovic ordered him to alert Stewart that the family of ImClone drug company founder Sam Waksal was dumping its shares.
Faneuil said he told Bacanovic, who was on holiday 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 reject an ImClone drug application – a decision that sent the shares into a sharp decline.
Faneuil, who was manning Bacanovic’s desk at Merrill Lynch, testified that he took calls before
10am 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, who made her billion dollar fortune in home decorating, was unavailable and on her way to her own holiday 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 dollars per share.
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 penalised prosecutors for being too slow in turning over an FBI document that defence lawyers say raises questions about Faneuil’s credibility.
Faneuil continues in the witness box today and was expected to say he actually told Stewart the Waksals were selling.
While 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 today.
Lawyers for Bacanovic and Stewart are carefully planning a strategy for Faneuil’s cross-examination. Faneuil had initially supported Bacanovic and Stewart’s story, but changed his story in a 2002 plea deal with prosecutors.
The defence 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.
Prosecutors sought to blunt that argument as soon as Faneuil took the stand. Prosecutor Karen Patton Seymour asked him whether he had ever committed a crime.
“I told one client about what another client was doing in his account,” Faneuil said, “and then lied about it to cover it up.”
Defence lawyers are also hoping the judge will allow them to question Faneuil about past drug use, and Bacanovic’s lawyer has suggested he will argue that Faneuil himself decided – without Bacanovic’s approval – to tip Stewart.
Faneuil also testified that Stewart was one of Bacanovic’s two most-valuable clients and was close enough to her that he got some shares in Stewart’s own company when it went public.
Stewart faces five counts carrying a potential prison term of 30 years. Bacanovic faces five years carrying 25 years. If convicted, both would likely get lighter sentences under federal guidelines.
