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Faneuil: Martha authorized stock sale
Government's star witness testifies home decor expert acted after hearing Waksal was trying to sell.
February 4, 2004: 6:12 PM EST
By Mary Snow and Allen Chernoff, CNNfn

NEW YORK (CNN/Money) - The government's star witness in the Martha Stewart trial testified Wednesday that the home decor expert authorized the sale of her ImClone Systems stock after he told her that the company's founder was trying to sell his stake.

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Ex-Merrill assistant Doug Faneuil testified Stewart told him to sell her ImClone stock after getting a tip ImClone's founder was trying to sell. CNNfn's Mary Snow reports.

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Former Merrill Lynch assistant Douglas Faneuil testified that he had been instructed to call Stewart by his boss, ex-Merrill broker Peter Bacanovic, who is Stewart's co-defendant in the case.

"We have no information on the company, but Peter thought you'd want to act on Sam's (Waksal) trying to sell his shares," Faneuil testified he told Stewart by telephone.

Faneuil testified that, after asking for details of Waksal's activities and a stock price for ImClone, Stewart said, "I want to sell all my shares."

Faneuil's testimony built on his revelations Tuesday that Bacanovic ordered him to give Stewart the confidential tip, saying, "Get Martha on the phone" when he was told about the Waksal sales.

Faneuil, the government's star witness against Stewart, admitted using marijuana and ecstasy while employed by Merrill Lynch.

Waksal, then chief executive of ImClone, and his two daughters were also Bacanovic's clients and were trying to sell their shares through Merrill.

Faneuil initially told investigators looking into the ImClone sale that Stewart sold her shares for tax-loss reasons.

But he later recanted, pleaded guilty to a misdemeanor and agreed to testify against his former boss and Stewart. He is awaiting sentencing.

Asked by U.S. Attorney Karen Patton Seymour why he eventually came forward to change his story, Faneuil said: "I couldn't continue to do this. I lied to the SEC on two different occasions. The cover up was part of my daily existence, and I just couldn't take it anymore."

Faneuil's testimony is seen as crucial to the government's contention that Stewart sold her ImClone shares only after getting a tip that Waksal and his family were dumping the stock.

Stewart and Bacanovic maintain they had a pre-existing order to sell ImClone stock if it dropped below $60 a share.

Drug question raised

The defense team started Wednesday trying to undermine the 28-year-old's testimony.

Under questioning, from Bacanovic's lawyer, David Apfel, Faneuil said he used ecstasy, marijuana and cocaine, as well as other drugs.

Asked if he'd ever taken any of these drugs on the job, Faneuil said no, adding that since late January 2002 he's only smoked marijuana.

"His credibility is clearly going to be attacked by two very experienced defense attorneys," former federal prosecutor Jim Walden told CNNfn.

"They're going to focus on two things: One, they're going to emphasize that (they believe) he is not telling the truth. And two, they're going to emphasize that even if truthful, the circumstances clearly could lead him to have made a mistake."

Walden said prosecutors would call other witnesses to bolster their case -- including Stewart's personal assistant and her best friend.

"Both of those people could have potential damaging evidence against Stewart," he said, adding they might also provide "nuggets" for the defense.

Related Links
Stewart's Employment Agreement at Martha Stewart Living Omnimedia Inc.
Court Ruling Dismissing 'Selective Prosecution' Defense
Superseding Indictment (U.S. v. Stewart and Bacanovic)

Asked to handicap who was ahead, Walden, now with the law firm O'Melveny & Myers, said: "It's just the first couple of rounds at the match."

Cross-examination of Faneuil was expected to continue Thursday.

Stewart and Bacanovic are charged with obstructing justice by lying to investigators about her Dec. 27, 2001, sale of nearly 4,000 shares of ImClone. A negative announcement by the government the next day about ImClone sent the company's stock tumbling.

'That's the whole point'

Faneuil told jurors Tuesday afternoon that he called the vacationing Bacanovic the day of the trade and informed him that Waksal and his daughters were trying to dump their shares. "Oh my God, get Martha on the phone," Faneuil said he was told by his boss.

Faneuil then testified that he asked Bacanovic whether he should tell Martha about the Waksal family's sales and Bacanovic replied, "Of course, you must. We've got to, that's the whole point."

Faneuil also told the court he knew what he was doing was illegal.

Martha Stewart
ImClone Systems Incorporated
Martha Stewart Living Omnimedia Incorporated
Douglas Faneuil

"I told one client about what another client was doing in their account and then lied about covering it up," he said, in response to a question from Seymour.

Stewart, the lifestyle expert who founded Martha Stewart Living Omnimedia (MSO: Research, Estimates), faces up to 30 years in prison while Bacanovic could be sentenced to as much as 25 years if convicted on all counts, according to the U.S. Attorney's office.

Waksal is serving a seven-year prison term after pleading guilty to charges of trying to sell ImClone (IMCL: Research, Estimates) stock a day before the government said it rejected the company's application for a new cancer drug, Erbitux.  Top of page

-- from CNNfn's Kelly Marshall, staff and wire reports

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