Faneuil May Testify; Stewart Shares Fall

Shares of Martha Stewart Living Omnimedia Inc. fell in trading Thursday after a published report said an assistant at Merrill Lynch & Co. has agreed to plead guilty to a misdemeanor and testify against Martha Stewart and others in the federal investigation of stock sales in ImClone Systems Inc. last year.

The Wall Street Journal reported that prosecutors had sought to charge the assistant, Douglas Faneuil, with a felony for making false statements to investigators but later agreed to a misdemeanor charge in exchange for his cooperation. The newspaper cited people familiar with the discussions.

The charge is expected to be filed within days.

Shares of Martha Stewart Living declined 60 cents, or 7.7%, to close at $7.20 on the New York Stock Exchange.

Through his lawyer, Faneuil declined to comment, as did the U.S. attorney’s office in New York. A spokesperson for Stewart also declined to comment Thursday, but in the past she has denied wrongdoing.

Merrill Lynch handled Stewart’s sale of nearly 4,000 ImClone shares in late December, shortly before the company announced that federal regulators would not review the company’s cancer drug Erbitux.

Stewart has said she had a standing order with her broker, Peter Bacanovic--for whom Faneuil worked--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.

The misdemeanor charge involves a gift Faneuil accepted from Bacanovic in exchange for corroborating the account about the stop-loss order to federal investigators, the Journal said.

The newspaper said it was not certain that charges would be filed against Stewart, and people familiar with the investigation told the Journal no charges were imminent.

Faneuil’s plea deal, which remains subject to change, will not be final until it is entered in federal court.