New York, NY, Feb. 4--The government's star witness against Martha Stewart testified Tuesday that Stewart's stockbroker ordered him to pass a tip on ImClone Systems stock to her just before she dumped her shares in the company.
Douglas Faneuil, a former assistant at Merrill Lynch & Co., testified that broker Peter Bacanovic ordered him to alert Stewart on Dec. 27, 2001, that the family of ImClone Systems founder Sam Waksal was trying to sell its shares.
Faneuil said he expressed concern and asked Bacanovic whether passing such a tip would be appropriate.
"Of course. You must. That's the whole point," he said Bacanovic replied.
Faneuil described a hectic morning during which he fielded calls from Waksal's accountant and both of Waksal's daughters before 10 a.m., all ordering him to sell the family's ImClone shares immediately.
Waksal later admitted he had advance word of a decision that was to be released the next day--a negative government report on an ImClone cancer drug--that would send the stock tumbling. Waksal is now serving a prison term of more than seven years.
Faneuil said he called Bacanovic, who was on vacation in Florida, to discuss the flurry of selling by the Waksals. He said Bacanovic blurted: "Oh my God, get Martha on the phone."
Faneuil's testimony contradicts Stewart and Bacanovic's claim that they had a pre-existing agreement to sell Stewart's ImClone stock when its price fell below $60 per share.
Stewart and Bacanovic are standing trial together in federal court over the stock sale. Faneuil is cooperating with the government and his testimony against the defendants is considered critical in the case. But he wasn't without kind words for his former supervisor.
"Peter [Bacanovic] was the best boss I ever had," Faneuil said. "It was a great working relationship. He was demanding yet appreciative."
Earlier Tuesday, a defense attorney moved to raise doubts about Faneuil by getting his former supervisor to admit she once reprimanded him for cursing on company e-mail.
Judy Monaghan, an administrator at Merrill Lynch, also testified she told Faneuil to stop using company e-mail for personal messages. Monaghan gave no details about the content of the e-mails.
The admission came under cross-examination from Richard Strassberg, the lawyer for Bacanovic. Faneuil's reputation and credibility will be critical to the trial's outcome.
Prosecutors on Tuesday put into evidence an e-mail invitation to a 2001 Christmas party at Waksal's home in SoHo that went to Bacanovic. They also tried to introduce W-2 tax forms that would have showed jurors how much money Bacanovic made at Merrill in 1999, 2000 and 2001, but the judge did not immediately allow it into evidence.
Also Tuesday, the judge overseeing the trial blocked prosecutors from telling the jury that Bacanovic removed certain documents from his Merrill Lynch office while they were under government subpoena.
"We don't know exactly what those documents were that were removed," prosecutor Michael Schachter told the judge. U.S. District Judge Miriam Goldman Cedarbaum said the point was irrelevant and ordered the jury to disregard the testimony about document removal.
Bacanovic's attorney, Richard Strassberg, said the only documents removed were personnel files, that Merrill officials had authorized their removal and even watched Messrs. Bacanovic and Strassberg take them.
"It's a complete red herring," Strassberg said.
Monaghan testified Monday that Bacanovic came to her in early 2002 with a request to boost Faneuil's pay, from 1.25% of Bacanovic's commissions to 1.75%, plus a one-time $5,600 payment.
Under cross-examination Tuesday, Monaghan said the raise was not out of the ordinary for an assistant who had gained experience. She also testified that giving Faneuil a week off in early 2002, and letting him eat a $150 dinner on the company's tab, were her idea because Faneuil appeared stressed and jumpy.
Under questioning from Strassberg, she said the time off and dinner had nothing to do with encouraging Faneuil to lie to investigators about Stewart's stock sale.
The government has alleged Bacanovic gave Faneuil plane tickets and extra vacation in exchange for backing up his and Stewart's version of why Stewart sold the stock.
