NEW YORK (CNN/Money) -
The government's star witness in the Martha Stewart trial testified Tuesday that his boss ordered him to pass an inside stock tip about ImClone Systems to Stewart.
|Douglas Faneuil, the government's star witness against Martha Stewart, testified Tuesday.
Douglas Faneuil -- the former assistant to Stewart's broker at Merrill Lynch, Peter Bacanovic -- said he initially lied to investigators about telling Stewart that her friend Sam Waksal and his family were trying to sell shares in ImClone, the drug company Waksal founded.
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.
Faneuil told jurors 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.
"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 U.S. Attorney Karen Patton Seymour.
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.
Originally, Faneuil had been expected to take the stand last week but his testimony was delayed following revelations that prosecutors may have withheld evidence about him from defense attorneys.
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.
Faneuil initially told investigators that Stewart sold for tax loss reasons and not because of any inside information. But he later changed his statement, saying he did not believe that a $60 sell order existed, and pleaded guilty to a misdemeanor. He is awaiting sentencing.
Stewart and Bacanovic say they had a long-standing agreement for Stewart to sell if ImClone fell to $60 a share.
Faneuil, 28, now working at a Manhattan art gallery, said Bacanovic referred to Stewart as one of his two most valuable clients. He also praised his former boss, calling him "demanding yet appreciative," Reuters reported.
"Peter was the best boss I ever had," he said, before adding that he would cover for Bacanovic whenever he was away on business or vacation.
Faneuil said he had access to his boss's e-mail and voice mail.
Meanwhile, in earlier testimony, the defense cross-examined Julia Monaghan, an administrative manager at Merrill Lynch, after the prosecution finished its questioning.
Monaghan testified Monday that Bacanovic gave Faneuil high marks during his annual performance review in October 2001 and noted that Bacanovic lobbied for a pay increase for Faneuil in March 2002.
Bacanovic's attorney Richard Strassberg highlighted the pay issue in an attempt to establish the increase was not intended to be hush money.
In his questions to Monaghan, Strassberg was trying to show that Faneuil made less money than his predecessor and that Bacanovic was trying to correct the pay discrepancy, which resulted from an administrative error.
Government prosecutors contend that pay raises and other perks for Faneuil were part of an effort to get him to take part in a cover-up of Martha's ImClone trade.
-- from CNNfn, staff and wire reports