Merrill Assistant Says He Took Bribe To Lie About Stewart's SaleOct 2, 2002 | TheStreet.com
Douglas Faneuil, the assistant to Martha Stewart's stockbroker, admitted Wednesday that he lied to investigators, covering up details that may support insider-trading charges against the famous homemaking entrepreneur.
The former Merrill Lynch assistant pleaded guilty in Manhattan federal court to a federal misdemeanor charge, part of an agreement in which he may testify against Stewart and others involved in the ImClone Systems stock scandal.
Following Faneuil's guilty plea, Merrill fired him and Peter Bacanovic, Stewart's broker. The two men had been on paid leave since June.
"All company employees are required to adhere to high standards of honesty and ethical conduct," Merrill said in a statement. "The Faneuil admission violates those standards. Employees are required to cooperate fully with regulatory and law enforcement investigations. Bacanovic violated this policy."
Faneuil pleaded guilty on Wednesday to taking what amounted to a bribe in exchange for not telling authorities what he knew about ImClone stock sales. The charge carries a maximum sentence of one year in prison. But Fanueil is unlikely to serve time in return for his testimony in the investigation.
Initially, Faneuil adhered to Bacanovic's story that Stewart, head of Martha Stewart Living Omnimedia, had a prearranged stop-loss order to sell her roughly 4,000 ImClone shares when they fell below $60 each.
But now Faneuil has admitted to accepting perks, including an extra week's vacation and an airline ticket, in exchange for backing Bacanovic's story. As long as he agreed with his boss' version of events, Faneuil also continued to get additional compensation, which was a portion of Bacanovic's commission.
In fact, court papers suggest that when Bacanovic became aware in late December that ImClone's founder Sam Waksal and a relative were trying to unload their shares, the broker told Stewart about it. The papers don't specifically name Bacanovic or Stewart, but the documents' descriptions of a "financial adviser" and "client" are believed to correspond to Bacanovic and Stewart.
In a statement, Bacanovic's attorney, Richard Stassberg, said, "we are disappointed in Merrill Lynch's decision to terminate Peter Bacanovic's employment, however, we remain confident that when the investigation is completed he will be fully vindicated of any wrongdoing. We have no comment with respect to Douglas Faneuil's plea."
Investigators are trying to find out if Stewart had inside information when she sold her stock, a day before a negative ruling on ImClone's cancer drug Erbitux. She has repeatedly denied any wrongdoing, and a spokeswoman for her declined to comment on the Faneuil plea or the Merrill firings.
In September, a congressional committee turned over its inquiry to the Justice Department to decide whether or not to pursue charges against her. The Faneuil plea may help build a case against Stewart.
"If Faneuil had not rolled over, it would have been a harder case to make," said Jeff Brotman, a law professor at University of Pennsylvania. "But now, prosecutors may be able to ratchet up the pressure."
Shares of Martha Stewart Living Omnimedia closed down 6%, at $6.82. The stock has lost 65% of its value since June, when reports of the congressional investigation into her stock sale surfaced.
Waksal, the former chief executive officer and friend of Stewart, has pleaded innocent to insider trading charges. Investigators say he tipped off relatives to sell ImClone before the company's Dec. 28 announcement that the FDA would not review Erbitux.