Posted on 09/26/2002 8:24:04 AM PDT by Tumbleweed_Connection
A Merrill Lynch & Co. brokerage assistant has agreed to plead guilty to a misdemeanor charge and provide testimony to federal prosecutors against Martha Stewart and others for their suspicious sales of ImClone Systems Inc. (NasdaqNM: IMCL - News) stock late last year, people familiar with the matter told The Wall Street Journal.
The plea agreement by Douglas Faneuil marks a crucial step in the investigation into the trading of ImClone shares that has ensnarled the company's former chief executive, the already-indicted Samuel Waksal, as well as Ms. Stewart. It also indicates that prosecutors could be moving closer to filing possible charges against her. Merrill handled the sale of nearly 4,000 ImClone shares by the domestic-products executive in December, shortly before the company announced negative news about a cancer-fighting drug that sent the stock's price tumbling.
"This improves their chances of bringing a prosecution against Martha Stewart because they have a live witness," says Seth Farber, a former federal prosecutor who worked in the same office that is currently investigating Ms. Stewart's trade. "You wouldn't enter into a plea agreement of this type -- at least this office wouldn't -- unless they are moving forward with the investigation."
Mr. Faneuil, through his lawyer, declined to comment, as did the U.S. attorney's office in New York. A spokeswoman for Ms. Stewart declined to comment, but in the past she has denied wrongdoing.
It isn't certain that charges will be filed against Ms. Stewart, and people familiar with the investigation said no charges are "imminent."
Mr. Faneuil has emerged as an important witness in the government's inquiry into Ms. Stewart's ImClone sale. As an assistant to Peter Bacanovic, Ms. Stewart's Merrill broker, Mr. Faneuil initially supported Ms. Stewart's version of events: that she had a previously arranged "stop-loss agreement" with her broker to sell the stock if the shares fell below $60 each.
As part of the deal, the Manhattan U.S. attorney's office plans to file the charge against the 26-year-old Mr. Faneuil in the next few days, people familiar with the discussions say. The charge involves a gift Mr. Faneuil accepted from Mr. Bacanovic -- perhaps something as trivial as theater tickets -- in exchange for corroborating the account about the stop-loss order to the federal investigators.
Mr. Faneuil later changed his story during interviews with lawyers for Merrill as well as with federal investigators, casting doubt on Ms. Stewart's account. As reported in The Wall Street Journal, Mr. Faneuil now says that there was no stop-loss agreement. Ms. Stewart sold her stock after he told her, at the behest of Mr. Baconovic, to unload her shares because Dr. Waksal and members of his family were trying to sell theirs, according to people close to the case.
A lawyer for Mr. Bacanovic couldn't be reached for comment.
Prosecutors at first considered filing felony charges of making false statements against Mr. Faneuil for his initial assertions about the trades, the people familiar with the matter say. Mr. Faneuil's lawyers had sought an immunity deal shielding him from any prosecution. After weeks of negotiations, the U.S. attorney's office agreed to a deal in which he would be charged with a misdemeanor in exchange for his cooperation in the case. The deal won't be final until it's entered in court, and it still could change.
Dr. Waksal, the ImClone founder and a close friend of Ms. Stewart, was indicted last month on criminal insider-trading charges. He has pleaded not guilty. Prosecutors say he tipped off relatives to sell their ImClone shares, as well as trying to sell his own stock, before the company's Dec. 28 announcement that the Food and Drug Administration ( news - web sites) wouldn't review its anticancer drug, Erbitux.
Wall Street Journal Staff Reporters Charles Gasparino and Jerry Markon contributed to this report.
Shares of Martha Stewart Living Omnimedia Inc. fell in early 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 last year.
The Wall Street Journal said in Thursdays editions 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 in exchange for his cooperation. The newspaper cited people familiar with the discussions. The charge is expected to be filed within days...
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