The prosecution case against Martha Stewart strengthened on Wednesday after Douglas Faneuil, the Merrill Lynch assistant stock broker, pleaded guilty to misdemeanor charges.
Mr Faneuil admitted to receiving gifts from a Merrill financial adviser in exchange for withholding material information from prosecutors.
The plea, which was part of an agreement to assist prosecutors, is the strongest signal yet charges may be forthcoming against Ms Stewart, the home design icon, or her Merrill broker, Peter Bacanovic, relating to an insider trading scandal at biotechnology company ImClone.
Authorities are probing whether Ms Stewart relied on inside information when she sold nearly 4,000 ImClone shares, her entire stake, the day before the Food and Drug Administration publicly rejected its cancer drug, Erbitux, sending the stock down.
Mr Faneuil is central to the case. He held an 11-minute conversation with Ms Stewart on December 27 before executing her sale. His boss, Mr Bacanovic, was away at the time.
Mr Faneuil previously backed Ms Stewart and Mr Bacanovic’s explanation that the sale was based on an oral agreement to sell the shares if ImClone fell below $60 when he was interviewed by the Securities and Exchange Commission in January and the Federal Bureau of Investigation in March.
But Mr Faneuil app-roached authorities in June, after ImClone founder Sam Waksal was arrested for insider trading, to change his testimony. He claims that on Mr Bacanovic’s orders he informed Ms Stewart the Waksals were trying to unload their ImClone shares that morning.
The government claims that Mr Faneuil received certain benefits from withholding information from prosecutors, including his salary and a percentage of Mr Bacanovic’s commissions. Mr Faneuil was also offered an extra week’s vacation and an airline ticket by his boss, the government said.
Merrill fired both brokers on Wednesday, citing Mr Faneuil’s ethical lapse and Mr Bacanovic’s refusal to co-operate with officials from the SEC.
Ms Stewart and Mr Bacanovic, both friends of Mr Waksal, have denied any wrong-doing in the matter.Marc Powers, Mr Faneuil’s lawyer, said his client was a young man “who found himself in a difficult situation that was thrust upon him”.