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Guilty Plea Turns Up Heat On Stewart

Oct 3, 2002 | AP

Prosecutors may have moved a step closer to Martha Stewart in their investigation of her alleged insider stock deals.

Douglas Faneuil, an assistant to Stewart's stockbroker, pleaded guilty Wednesday to a misdemeanor charge of receiving money and other valuables for keeping quiet about Stewart's sale of ImClone Systems Inc. shares last December.

"This public plea is designed to convince Martha Stewart to lay down her sword and admit that she traded on inside information," said Seth Taube, a former Securities and Exchange Commission lawyer now in private practice.

Faneuil and his supervisor, Peter Bacanovic, Stewart's broker have been fired by Merrill Lynch. The assistant, who faces a maximum year in prison, will likely get probation under the plea deal.

He would also testify against Stewart and others who might be charged in the case.

"The idea is you flip Faneuil, then you flip Bacanovic, and then you get Stewart," Taube said. "She is clearly the top of the pyramid in this little triangle."

Stewart dumped nearly 4,000 shares of ImClone just before the stock price began to plunge on news that the Food and Drug Administration would not review its application for its highly touted cancer drug, Erbitux. The FDA decision meant that the drug, upon which the company's fortunes relied, was unlikely to gain approval soon.

Court papers filed in Manhattan federal court did not identify the person who received the insider information — the tippee.

When Faneuil's lawyer, Marvin Pickholz, was asked outside court if that person was Stewart, he replied: "If you guys read this information and you can't fill in the blanks, you're in serious trouble."

Faneuil admitted during his plea he had withheld the truth from SEC investigators and FBI agents when first interviewed about the trading.

"I did not truthfully reveal everything I knew concerning the actions of my immediate supervisor ... and the true reasons for the tippee's sale of ImClone stock," Faneuil said.

In exchange for stonewalling probers, Faneuil was offered an extra week of vacation and a free airline ticket and was given an increase in his commission rate, court papers said.

Court papers say on Dec. 27, Faneuil's boss let the tippee know then-ImClone CEO Sam Waksal was trying to sell all the ImClone stock he held at Merrill Lynch.

"The tippee then sold all of the tippee's shares of ImClone stock, approximately 3,928 shares, yielding proceeds of approximately $228,000," the court papers said.

Waksal was indicted in August for allegedly telling friends and family members to dump millions of dollars worth of ImClone stock before the bad news about Erbitux hit the markets. He has pleaded innocent.

Stewart, who has previously denied any wrongdoing, has said she had a standing order to sell the ImClone shares if they fell below $60. Faneuil initially gave investigators the same account but later said there had been no such order.

Allyn Magrino, a spokeswoman for Stewart, declined to comment on Faneuil's plea. Bacanovic's lawyer, Richard M. Strassberg, issued a statement expressing their disappointment with Merrill Lynch's decision.

"However, we remain confident that when the investigation is completed Mr. Bacanovic will be fully vindicated of any wrongdoing," said Strassberg, who declined to comment on Faneuil's plea.

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