Star prosecution witness testifies Martha Stewart told him to sell

0 Comments | Deseret News (Salt Lake City), Feb 4, 2004 | by Erin McClam Associated Press

NEW YORK -- In the most damaging testimony yet, a former Merrill Lynch assistant said Wednesday that Martha Stewart told him to sell her ImClone Systems stock after he advised her that the company founder was trying to dump his own shares.

Douglas Faneuil, under questioning from the prosecution, told the jury about a phone call he received from Stewart on Dec. 27, 2001. Faneuil said he told her that ImClone founder Sam Waksal was trying to sell all his shares of the stock -- and she ordered him to do the same. He gave the testimony after he admitted outside the jury's presence that he had used marijuana and Ecstasy while at Merrill Lynch.

"Hi, this is Martha," he quoted Stewart as saying at the beginning of the conversation. Faneuil said he advised her that she "might want to act on the information that Sam's selling all of his shares."

"All of his shares?" Stewart replied, according to Faneuil.

"What he does have here, he's trying to sell," Faneuil testified that he answered. According to Faneuil, Stewart then told him to sell off all her shares at market price -- contradicting her story that there was a standing "stop loss order" to sell the stock if it fell to $60 a share.

Faneuil testified that he never heard anything about the order until more than a week after the sale, when an agitated Peter Bacanovic -- Stewart's broker and co-defendant -- insisted that was the case during a phone call.

Faneuil, on the witness stand, imitated a breathless Bacanovic insisting the sale was legitimate. Faneuil said he was browbeaten until he agreed with the broker.

Waksal, a former jet-setting New York socialite, is serving a seven-year prison sentence after admitting he instructed his family to sell ImClone shares when he got word the government was about to issue a negative report on ImClone's new cancer drug.

Earlier, defense attorney Robert Morvillo gave a glimpse at the defense strategy of undermining the witness when he grilled Faneuil about the young assistant's drug use while employed at Merrill Lynch.

Faneuil, in a court session without the jury present, said he smoked marijuana with friends "about once a month." He also acknowledged using the club drug Ecstasy two or three times, but insisted he had never used any drugs while at work.

"It intensifies your tactile sensations and emotions," Faneuil said of Ecstasy. U.S. District Judge Miriam Goldman Cedarbaum said she would restrict Morvillo's questioning in front of the jury, but did not elaborate.

On Tuesday, the former brokerage assistant testified that broker Peter Bacanovic made it clear he wanted the stock tip passed to Stewart by blurting: "Oh my God, get Martha on the phone."

The tip: ImClone Systems founder Waksal and his family were frantically trying to unload their shares of ImClone stock. Bacanovic is a co-defendant.

Faneuil told jurors of a hectic December morning at Merrill, with Waksal's accountant and Waksal's two daughters barking sell orders at him in just the first hour of the day.

Prosecutors are hitching their case on Faneuil, just 28, hoping they will believe the tip led Stewart and Bacanovic to tell a string of lies to prosecutors about why Stewart sold the stock.

Bacanovic and Stewart claim they had decided in the days before Dec. 27 to sell Stewart's 3,928 shares of ImClone when the stock fell to $60 per share. Stewart is also accused of deceiving her own investors about the investigation.

Faneuil had initially supported Bacanovic and Stewart's story, but changed his account in a 2002 plea deal with prosecutors.

Faneuil's 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.

Stewart faces five counts in a federal indictment, carrying a potential prison term of 30 years. Bacanovic faces five counts carrying 25 years. Both would likely get lighter sentences under federal guidelines if convicted.