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Plot Thickens For Martha

Oct 2, 2002 | CBSNEWS.COM

A brokerage assistant involved in an insider-trading probe surrounding home decorating expert Martha Stewart pleaded guilty to a misdemeanor Wednesday, cutting a deal with prosecutors that signals further legal trouble for Stewart.

Douglas Faneuil, 26, pleaded guilty as part of a deal to testify against Stewart and others who who might be charged in connection with sales of ImClone shares last December, just before the stock price plunged on news the Food and Drug Administration would not review its highly touted cancer drug, Erbitux.

In court, Faneuil said that during his interviews with law enforcement officials, "I did not truthfully reveal everything I knew about the actions of my immediate supervisor and the true reasons for the 'tippee's' sales."

Merrill Lynch, where Faneuil worked, handled Stewart's sale of nearly 4,000 ImClone shares.

Faneuil reportedly had accepted Knicks tickets in exchange for hiding his knowledge from investigators of the alleged insider stock deal involving Stewart. Court papers said he received an extra week of vacation and a free airline ticket.

Stewart's name did not appear in the criminal information filed Wednesday before the magistrate in Manhattan federal court.

Prosecutors are trying to determine if Stewart was tipped off by her friend Sam Waksal, ImClone's founder and ex-CEO, or her Merrill Lynch broker, Peter Bacanovic, who was Faneuil's boss.

In court papers, prosecutors said the tip, either directly or indirectly, came from Bacanovic. They also said that Bacanovic on Dec. 27 told a client, referred to in the papers as the "tippee," that Waksal was trying to sell all of the ImClone stock that 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 tipping off family members to dump millions of dollars worth of ImClone stock before the bad news about Erbitux hit the markets. He pleaded innocent to the charges.

Stewart, who has previously denied any wrongdoing, has said she had a standing order with Bacanovic to sell the ImClone shares if they fell below $60. Faneuil, 26, initially gave investigators the same account but later changed his story and said there had been no such order.

Stewart spoke by phone with Faneuil the day her sale was made, investigators say.

Faneuil pleaded guilty to receiving money or other valuables "as consideration for not informing." The misdemeanor charge carries a maximum penalty of a year in prison, but under the plea deal, Faneuil likely will get probation.

Faneuil's cooperation increases the pressure on Bacanovic to tell everything he knows about any insider information that spurred sudden stock sales by members of Waksal's family and others, including Stewart.

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