The broker for Martha Stewart, the home design guru, claims his assistant passed inappropriate information to her about insider sales in ImClone, the biotechnology group, without his knowledge, according to people familiar with his version of events.
Peter Bacanovic, who works for Merrill Lynch, also believes that the assistant, Douglas Faneuil, fabricated claims that he passed on the information under his chief’s orders to spare himself from possible charges, these people said.
Neither the broker nor Ms Stewart has been charged in the probe into alleged insider trading, but authorities have intensified their probe of the two after indicting Sam Waksal, ImClone’s founder, last week.
Mr Bacanovic’s defence emerged for the first time as Mr Waksal pleaded not guilty on Monday to charges stemming from the government probe into insider trading at the biotechnology company last December.
Mr Waksal said he looked forward to addressing the charges in court, and maintained his faith in Erbitux, the cancer drug at the heart of the scandal.
Mark Pomerantz, his attorney, asked the public not to lump his client in with other high-profile US executives who have been charged with white collar crimes in recent weeks.
Mr Waksal was arrested in June for allegedly trying to sell shares in ImClone and tip off his family members just before the Food and Drug Administration publicly rejected Erbitux.
Last week’s indictment also accused him of perjury, destroying documents and bank fraud for using a previously exercised warrant on ImClone shares to secure a $44m loan from Bank of America. This latter charge carries a sentence of up to 30 years.
Mr Waksal’s plea could hinder the government’s efforts to build a case against Ms Stewart. They had been working on an agreement in which Mr Waksal would testify against others in exchange for leniency for his daughter, Aliza, who is under investigation but has not been charged. But those talks broke down.
Ms Stewart, a close friend of Mr Waksal, has come under suspicion for selling her ImClone shares the day before the FDA ruling became public. She has denied any wrongdoing and claimed she had an arrangement with Mr Bacanovic to sell her shares if they fell below $60.
Mr Bacanovic and Mr Faneuil were placed on paid leave by Merrill in June after Mr Faneuil contradicted his chief’s explanation for the sale. Mr Faneuil is understood to have told the Justice Department he informed Ms Stewart of the Waksals’ share sales at Mr Bacanovic’s behest.
He is trying to win immunity from obstruction of justice charges in exchange for his testimony against the two.