A Merrill Lynch & Co. brokerage assistant pleaded guilty to a misdemeanor count and is likely to offer testimony against Martha Stewart and others regarding their suspicious sales of ImClone Systems Inc. shares.
Douglas Faneuil, 27 years old, admitted to receiving money or other valuables from an unidentified advisor at Merrill Lynch for withholding information from authorities about a client’s sale of ImClone stock. The client hasn’t been identified, but court papers indicate the client sold 3,928 shares on Dec. 27 upon learning that ImClone founder Sam Waksal was trying to sell all of his ImClone shares held at Merrill Lynch.
Ms. Stewart, the chief executive of Martha Stewart Living Omnimedia Inc., has acknowledged selling 3,928 ImClone shares on Dec. 27, a day before ImClone announced its cancer drug Erbitux was rejected by the Food and Drug Administration.
During his court proceeding, Mr. Faneuil has been employed at Merrill as an assistant to Peter Bacanovic, who is also under investigation. Mr. Bacanovic served as a broker for Ms. Stewart.
Mr. Faneuil told U.S. Magistrate Judge Kevin Fox that he accepted gifts from his supervisor and in return, gave inaccurate information to the Securities and Exchange Commission and the FBI. He allegedly received more money, an additional week of vacation and an airline ticket from the financial advisor.
Mr. Faneuil is scheduled to be sentenced Jan. 7. He faces up to one year in prison.
Outside the courthouse, attorney Marc D. Powers faced scores of photographers and reporters as he gave a statement on behalf of his client. Mr. Faneuil.
“Nine months ago, he found himself in a very difficult situation,” said Mr. Powers. “He’s a young man and has the guts and courage to come forward.”
He declined to comment on whether Mr. Faneuil would testify against Ms. Stewart or former Imclone Chief Executive Sam Waksal.
Another attorney for Mr. Faneuil, Marvin Pickholz, said his client was ” grateful” to have reached a plea agreement with the Manhattan U.S. attorney’s office. He also said Mr. Faneuil spent Tuesday night watching “Legally Blonde” to calm his nerves before Wednesday’s court session.
Court papers indicate Mr. Faneuil took a telephone call Dec. 27 from a member of Mr. Waksal’s family, who placed an order to sell 39,472 ImClone shares for $ 2.5 million. Later, Mr. Faneuil took a call from Mr. Waksal’s accountant, who attempted to sell 79,797 shares worth $4.9 million for Mr. Waksal.
The court papers also describe how the Merrill adviser then allegedly tipped off a client about Mr. Waksal’s attempt to sell his ImClone stock. The “tippee” then sold 3,928 ImClone shares to avoid losses of $45,673, according to court papers.
Ms. Stewart has said that she sold her ImClone shares only because of a previously arranged “stop-loss agreement” with Mr. Bacanovic to sell the stock if its price dipped below $60.
Mr. Faneuil initially supported Ms. Stewart’s version of events, but later changed his story and said there hadn’t been a stop-loss order. “I did not truthfully reveal everything I knew about the actions of my immediate supervisor … and the ‘tippee’s’ sale of stock on Dec. 27,” he told the judge.
Mr. Pickholz later said, “The information speaks for itself,” and when asked if the “tippee” in the complaint was Ms. Stewart, he commented, “You fill in the blanks.”
Ms. Stewart’s attorney, Robert Morvillo, couldn’t immediately be reached for comment. A Merrill spokesman also couldn’t be reached.
Mr. Waksal was indicted in August on insider-trading charges. He allegedly tipped off his father and daughter to sell their ImClone shares ahead of the news that sent ImClone’s stock tumbling. He has pleaded not guilty.