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Martha Blames Rookie

Aug 14, 2002 | The New York Daily News

Blame the kid.

That's the strategy Martha Stewart and her stockbroker Peter Bacanovic are using to defend themselves in the ImClone insider-trading scandal, sources told the Daily News yesterday.

Both are pointing the finger at Douglas Faneuil, a 26-year-old rookie brokerage assistant, for landing them in the mess, the sources said.

At the same time, Stewart's personal assistant, Ann Armstrong, has begun cooperating with the federal investigation of Stewart's ImClone stock trade, said another source familiar with the matter.

Armstrong handled the phone contacts between Faneuil and Stewart - and took messages about ImClone's stock trading downward.

In her discussions with prosecutors, she has not contradicted Stewart's version of events, the source said.

The case now hinges on whether Stewart got insider information during an 11-minute phone conversation she had with Faneuil on Dec. 27, minutes before he executed an order to sell all her ImClone stock.

Faneuil says that following Bacanovic's instruction, he gave Stewart an insider tip - that ImClone founder Sam Waksal's daughter, Aliza, and his father, Jack, sold off millions of dollars worth of ImClone stock that morning.

But Bacanovic denies telling Faneuil to warn Stewart about the Waksals' sales, and Stewart denies receiving insider information, said two sources familiar with the situation.

That makes Faneuil - with one year on the job as a broker's assistant at Merrill Lynch - the only one saying Stewart got insider information.

And it sets up a classic he said/she said dilemma that prosecutors must confront in deciding whether to slap the cuffs on Stewart.

Bacanovic has told investigators he and Faneuil might have discussed the fact that Waksal family members were selling ImClone stock, the sources said.

But he insisted he never instructed Faneuil to tell Stewart this, according to two sources.

"On its face, that's not credible," one source said of Faneuil's claim that he was instructed to give Stewart the insider information. "If he said it, it's far-fetched."

Even if Faneuil somehow communicated insider information to Stewart, Bacanovic can say Faneuil did it on his own, the sources said.

Stewart, meanwhile, is saying it did not happen, the sources said.

There's no tape of what was said, which means the only proof is Faneuil's uncorroborated word, according to these sources.

Stewart spokeswoman Allyn Magrino declined to comment, as did Bacanovic's lawyer, Richard Strassberg. Faneuil's lawyer, Marc Powers, did not return calls seeking comment.

Probe target

Stewart is the target of an FBI probe into whether she got an insider tip before selling her 4,000 ImClone shares the day before the government sent the stock into a tailspin by rejecting ImClone's anti-cancer drug, Erbitux.

Stewart has maintained that she sold the stock because of an oral agreement to sell if the stock fell below $60 per share, sources said. It fell to $59.98 for the first time in months two hours before she sold, records show.

Meanwhile in Washington, a House committee investigating ImClone expects to receive documents from Stewart within the week.

Committee spokesman Ken Johnson said her lawyers have promised to turn over everything by Tuesday, though they're still unwilling to let congressional staff interview her.

"We intend to review the documents and then make a decision about subpoenaing her," Johnson said. "The review process could take a while."With Timothy J. Burger

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