Stewart Case Hinges on Ex-Aide at Merrill

Martha Stewart is nothing less than a national icon, a politely smiling media titan whose tasteful imprint graces books and bed linens, garden boots and garlic presses, clipped-out recipes on refrigerator doors and bulletin boards.

Douglas Faneuil is a 28-year-old, baby-faced former brokerage assistant who lives in relative obscurity in a Brooklyn apartment, noted among his friends as a fierce competitor at pingpong and air hockey.

In perhaps the apex of the two-year parade of American corporate scandals, the latter could be the deciding factor in whether the former goes to prison.

“Doug is probably one of the most benevolent, sweet, kind and gentle human beings I know,” said his friend Sally Haskell.

Coming to a Manhattan courtroom: David versus the Goliath of Grace.

It was 1:39 p.m. on Thursday, Dec. 27, 2001, at a Merrill Lynch brokerage office in Manhattan, when, according to the government, Faneuil took a call from Stewart.

Prosecutors say Faneuil, on orders from his boss, broker Peter Bacanovic, told her that the family of ImClone Systems Inc. founder Samuel Waksal was trying to unload its shares of ImClone stock.

Thirteen minutes later, Faneuil, on orders from Stewart, sold her stable of 3,928 shares of ImClone stock, netting about $228,000, the government says.

Late the next day, ImClone announced that the government had issued a negative report about its new cancer drug -- news that sent the company’s stock plummeting 18%.

Stewart was indicted on charges that she repeatedly lied to investigators about why she sold.

Stewart and Bacanovic, indicted with her in June, present a far different story -- that weeks earlier, they had struck an oral agreement to sell Stewart’s shares if the stock fell to less than $60.

Initially, Faneuil backed up that account. Then he hired a lawyer and, in June 2002, changed his story.

On Oct. 2, 2002, Faneuil pleaded guilty to a misdemeanor and admitted in court papers that he had received an extra week of vacation and a free airline ticket in exchange for misleading investigators about the stock sale.

It was an extraordinary turn for the quiet, ambitious assistant. It also cemented his role as the government’s star witness in the white-collar scandal.

Faneuil, who was hired in spring 2001 as an assistant to Bacanovic, left Merrill after the Stewart scandal exploded. He remains unemployed, occasionally working temp jobs.

He declined an interview request from Associated Press.

It probably will be late January or early February when prosecutors call Faneuil to tell his story, a version potentially devastating to Stewart.

In any case, Stewart’s attorney, Robert Morvillo, is likely to attack Faneuil’s loyalty and credibility, arguing that he eagerly told the government what it wanted to hear to keep himself out of more legal trouble.

Former Securities and Exchange Commission lawyer Seth Taube has doubts about that.

“Faneuil’s youth and inexperience may play well to the jury as someone who was taken advantage of by Stewart and Bacanovic.”