Broker’s Former Aide Says Martha Stewart Was Tipped

A 28-year-old former stockbroker’s assistant took the witness stand Tuesday in the Martha Stewart trial and, in an hour of testimony that riveted the courtroom, said he was ordered to pass on an insider stock tip to the lifestyles tycoon.

The appearance of Douglas Faneuil marked the most significant moment so far in the widely watched trial. The boyish-looking Faneuil is seen by many as the key to the government’s fraud and obstruction-of-justice case against Stewart, who before her indictment in June sat atop a media empire once worth nearly $2 billion.

If convicted of all five charges against her, Stewart faces as many as 30 years in prison and a $2-million fine.

Appearing relaxed and confident, Faneuil recounted the hectic morning of Dec. 27, 2001, when he filled in at the Merrill Lynch & Co. desk of his then-boss, Peter Bacanovic.

Faneuil said he took a flurry of phone calls from family and representatives of Stewart’s friend Samuel Waksal, founder of biotech firm ImClone Systems Inc. All were trying to dump their ImClone stock.

Nervous and shaken from the barrage of calls, Faneuil said he dialed Bacanovic’s cellphone and reached the broker at his vacation quarters in Florida.

Bacanovic “tried to calm me down,” Faneuil said, and they discussed the Waksals’ unusual behavior.

Then suddenly, Bacanovic exclaimed: “Oh, my god! Get Martha on the phone!” Faneuil testified. Stewart, also a Bacanovic client, owned 3,928 shares of ImClone at the time, worth about $128,000.

Faneuil dialed Stewart’s office and hooked Bacanovic in on the call, but when they reached an assistant they learned that Stewart was heading to a vacation in Mexico. Bacanovic left a message for her to call the Merrill Lynch office.

Later, Bacanovic called Faneuil back and started a conversation that was at the crux of the government’s case.

Quoting his boss, Faneuil recounted the conversation:

“He said, ‘Listen, Martha’s going to call you back, and you’ve got to tell her what’s going on.’ From that I took him to mean I had to tell her about the Waksals’ sales earlier that morning. That’s really all that was going on.

“I said, ‘Well, what can I say? Can I tell her about Sam? Am I allowed to?’ ” Faneuil continued.

“Of course! You must. That’s the whole point!” Bacanovic replied, according to Faneuil’s testimony. The broker then told Faneuil to make sure he called Bacanovic back later to tell him how the Stewart sale went.

Faneuil’s account came just at the end of the court session, at 5 p.m., leaving jurors with a night to ponder the long-awaited testimony.

Bacanovic, 41, is Stewart’s codefendant. He and Stewart, 62, are charged with lying to investigators and covering up the reasons for Stewart’s sale that day of all of her ImClone shares.

Stewart and Bacanovic contend that they had a prior arrangement to sell the stock when it fell to $60 a share, which it did on Dec. 27, 2001.

The sale came a day before a negative Food and Drug Administration ruling against ImClone’s key cancer drug, which torpedoed the firm’s stock. By selling when she did, federal authorities say, Stewart saved herself at least $45,000.

Samuel Waksal is serving a seven-year jail sentence for insider trading, stemming from his own attempted stock sales the same day. Authorities said Waksal knew of the coming FDA rejection and tried to sell his stock before the news became public.

Dressed in a gray-green suit, Faneuil took the stand late Tuesday afternoon after hours of technical testimony from the administrator of the Rockefeller Plaza branch office where Bacanovic and Faneuil worked.

The atmosphere in the packed courtroom switched from somnolent to electric, as news reporters and audience members leaned forward to catch Faneuil’s words and courtroom artists scrambled to capture the likeness of the tall, dark-haired star witness.

Chief prosecutor Karen Patton Seymour handled the direct examination, leading Faneuil through a narrative that began with his admitting that he had lied in his initial interviews with federal investigators.

Asked whether he had ever done something illegal, Faneuil said he had: “I told one client what another was doing in his account and then lied about it to cover up.”

Faneuil, who lives in Brooklyn and now works in a Manhattan art gallery, also confessed to a white lie on his Merrill Lynch job application, where he claimed to have achieved a grade-point average of 3.5 at Vassar College, when in fact it was 3.44.

Gesturing lightly with his hands and often speaking directly to the jury of eight women and four men, Faneuil said that on the morning of Dec. 27, 2001, he took a call from Aliza Waksal, who ordered him to immediately sell all 39,472 ImClone shares in her account. The sale, executed when the stock market opened at 9:30 Eastern time, netted more than $2.4 million.

Elana Waksal Posner, the executive’s other daughter, called later, attempting to sell her own ImClone shares, but Faneuil determined that they were in an online Merrill account to which he had no access.

Posner asked Faneuil where ImClone shares were trading at that moment. He testified that when he told her the price, “she swore and then said, ‘It’s already going down.’ ”

Faneuil said he also fielded several calls from Samuel Waksal’s accountant, Alan Goldberg, who brusquely told him it was going to be a busy day and he should treat the Waksals like his “No. 1 client” and “ignore all other business that day.”

Goldberg wanted Faneuil to sell all of the ImClone stock in Samuel Waksal’s account -- 79,797 shares then worth about $5 million. Faneuil refused, telling Goldberg that stock sales by top executives needed additional legal authorization. Goldberg then demanded that Faneuil transfer the stock to Aliza’s account and then sell it, but again Faneuil refused, he testified.

Legal experts said it was a big day for the prosecution but that Faneuil couldn’t be called a successful witness until the defense had had a crack at him, which was expected to happen today.

“Anybody that experienced lawyers put on the stand is very well prepared,” said former federal prosecutor Mark J. Biros, now a criminal defense attorney with the Washington office of Proskauer Rose. “The whole point of cross-examination is to see how the witness does when he’s challenged.”

After sending the jury home, Judge Miriam Goldman Cedarbaum said she would interview Faneuil out of the jury’s presence this morning to determine how to rule on a prosecution motion to bar defense lawyers from referring to certain portions of an interview between Faneuil and federal investigators.