An assistant to Martha Stewart’s stockbroker pleaded guilty Wednesday to a misdemeanor charge that he was paid off to keep secret about an insider stock tip allegedly given to Stewart.
Douglas Faneuil pleaded guilty as part of a deal to testify against Stewart and others who might be charged in connection with sales of ImClone Systems Inc. shares last December.
Stewart dumped nearly 4,000 shares of ImClone just before the stock price plunged on news the Food and Drug Administration would not review its highly touted cancer drug, Erbitux.
Merrill Lynch, where Faneuil worked, handled Stewart’s sale of ImClone shares.
Court papers did not identify the “tippee” who received the insider information. Prosecutors are trying to build a criminal case against Stewart for allegedly receiving insider information. She and her friend Sam Waksal, ImClone’s founder and ex-CEO, shared a Merrill Lynch broker, Peter Bacanovic, who was Faneuil’s boss.
Faneuil’s lawyer, Marvin Pickholz, was asked outside court if the “tippee” was Stewart, and answered: “If you guys read this information and you can’t fill in the blanks, you’re in serious trouble.”
Stewart, who has 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.
Martha Stewart’s spokeswoman Allyn Magrino declined to comment on Faneuil’s plea.
Faneuil admitted during his plea that he had withheld the truth from Securities and Exchange Commission investigators, as well as FBI agents, when interviewed about the trading activity.
“I did not truthfully reveal everything I knew about the actions of my immediate supervisor and the true reasons for the `tippee’s’ sales,” Faneuil said.
In exchange for stonewalling probers, Faneuil received an extra week of vacation and a free airline ticket, court papers said. His lawyer denied published reports stating the assistant had received Knicks tickets in exchange for his silence.
“No one in their right mind would accept Knicks tickets,” cracked the lawyer. “That’s cruel and unusual punishment.”
In the court papers, prosecutors said the tip to the “tippee,” either directly or indirectly, came from Bacanovic.
Court papers also said that Bacanovic on Dec. 27 let the “tippee” know 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.
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.
Marc Powers, another attorney for Faneuil, said his client “voluntarily came forward” to tell authorities what he knew.
“Nine months ago Doug found himself, by certain events, in a very difficult situation thrust upon him,” Powers said. “He is a young man who had the guts and courage to come forward.”
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.