Merrill Lynch Assistant Pleads Guilty to Being Paid for Keeping Secret Information on ImClone

Prosecutors turned up the heat on Martha Stewart Wednesday when a stockbroker's assistant admitted taking a payoff to keep silent about an alleged insider stock trade by the home decorating diva.

Douglas Faneuil, 27, pleaded guilty as part of a deal to testify against Stewart and others who might be charged in connection with sales of ImClone Systems Inc. shares last December.

He admitted to a misdemeanor charge of receiving money and other valuables "as consideration for not informing."

Faneuil worked at Merrill Lynch for Stewart's broker, Peter Bacanovic. Immediately after the plea, the firm announced that both Bacanovic and Faneuil had been fired.

"This public plea is designed to convince Martha Stewart to lay down her sword and admit that she traded on inside information," said Seth Taube, a former Securities and Exchange Commission lawyer who is now in private practice.

"The idea is, you flip Faneuil, then you flip Bacanovic, and then you get Stewart," Taube said. "She is clearly the top of the pyramid in this little triangle."

Stewart dumped nearly 4,000 shares of ImClone just before the stock price began to plunge on news that the Food and Drug Administration would not review its application for its highly touted cancer drug, Erbitux. The FDA's decision meant that the drug, upon which the company's fortunes relied, was unlikely to gain approval any time soon.

Court papers filed in Manhattan federal court did not identify the "tippee" who received the insider information.

Faneuil's lawyer, Marvin Pickholz, was asked outside court if the "tippee" was Stewart, and answered: "If you guys read this information and you can't fill in the blanks, you're in serious trouble."

Faneuil admitted during his plea that he had withheld the truth from SEC investigators, as well as FBI agents, when first interviewed about the trading activity.

"I did not truthfully reveal everything I knew concerning the actions of my immediate supervisor ... and the true reasons for the 'tippee's' sale of ImClone stock," Faneuil said.

In exchange for stonewalling probers, Faneuil was offered an extra week of vacation and a free airline ticket, and was given an increase in his commission rate, court papers said. His lawyer denied published reports stating the assistant had received Knicks basketball tickets in exchange for his silence.

Court papers say that on Dec. 27, Faneuil's boss let the "tippee" know Waksal was trying to sell all of the ImClone stock he held at Merrill Lynch.

"The tippee then sold all of the tippee's shares of ImClone stock, approximately 3,928 shares, yielding proceeds of approximately $228,000," the court papers said.

Waksal was indicted in August for allegedly telling family members to dump millions of dollars worth of ImClone stock before the bad news about Erbitux hit the markets. He pleaded innocent to the charges.

Stewart, who has previously denied any wrongdoing, has said she had a standing order to sell the ImClone shares if they fell below $60. Faneuil initially gave investigators the same account, but later changed his story and said there had been no such order.

Allyn Magrino, a spokeswoman for Stewart, declined to comment on Faneuil's plea. Bacanovic's lawyer did not immediately return a call for comment.

Mark Herr, a Merrill Lynch spokesman, said the firm "has cooperated fully with investigators and has conducted itself properly throughout."

Marc Powers, another attorney for Faneuil, said his client "voluntarily came forward" to tell authorities what he knew.

"Nine months ago Doug found himself, by certain events, in a very difficult situation thrust upon him," Powers said. "He is a young man who had the guts and courage to come forward."

The misdemeanor charge carries a maximum penalty of a year in prison, but under the plea deal, Faneuil likely will get probation.

Shares of Martha Stewart Living Omnimedia Inc. fell 45 cents, or 6.2 percent, to close Wednesday at $6.80 each on the New York Stock Exchange.

http://www.washingtontimes.com/business/20020821-11608315.htm

Martha Stewart, who yesterday submitted records to a congressional committee investigating her sale of ImClone stock, is a top campaign contributor who has given nearly a half-million dollars almost exclusively to Democratic causes since 1998. Consequently, some Democratic operatives question whether the investigation by the Republican-led House Energy and Commerce Committee committee is politically motivated. The Justice Department and Securities and Exchange Commission also are investigating the home-decor executive's stock sale, though.

House Energy and Commerce Committee investigators are probing whether Mrs. Stewart, the chief executive of Martha Stewart Living Omnimedia Inc., lied about her Dec. 27 sale of 3,928 ImClone shares one day before adverse news sent the stock plummeting. Terry McAuliffe, Democratic National Committee chairman, made headlines earlier this month when he questioned whether President Bush was qualified to lead the attack against corporate greed because of his past business connections. Mr. McAuliffe's lucrative sale of Global Crossing Ltd. stock months before the company imploded in scandal and bankruptcy has raised eyebrows, though. He made $18 million off his $100,000 initial investment in the stock.

Mrs. Stewart's company is the top contributor among publishers of books, newspapers and magazines so far in the 2002 cycle. So far in the 2002 campaign cycle, Mrs. Stewart has donated $173,665 to Democrats personally or through her company, putting her among the top 100 contributors to either party, according to the Center for Responsive Politics, which describes her as "solidly Democratic." Among the Democratic luminaries Mrs. Stewart has contributed to are former President Bill Clinton, former Vice President Al Gore, former Sen. Bill Bradley of New Jersey, and Sens. Charles E. Schumer of New York and Robert G. Torricelli of New Jersey. A spokesman for the Democratic National Committee said the committee does not intend to return the contributions made to the DNC.

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