NEW YORK — A key government witness said yesterday that Martha Stewart told him to sell all her shares in ImClone Systems Inc. after she learned that the company's chief executive officer was trying to sell his shares.
Douglas Faneuil, the former Merrill Lynch & Co. Inc. assistant who is testifying for the prosecution, said his boss, Peter Bacanovic, told him to tell Stewart on Dec. 27, 2001, that ImClone CEO Samuel Waksal was trying to sell his shares. Waksal also was a Bacanovic client.
After Bacanovic, who was on vacation that day, left a message for Stewart, she called Faneuil.
"Hi. This is Martha. What's going on with Sam?" Stewart asked Faneuil.
Faneuil responded: "Peter thought you might like to act on the information that Sam is trying to sell all of his shares."
"All of his shares?" a surprised Stewart asked.
Faneuil said yes. Stewart asked him at what price ImClone was trading. Faneuil told her the price, which was falling that day.
"Sell my shares," Stewart told him.
The next day, shares fell lower on news that the government had issued a negative report about an ImClone cancer drug, Erbitux.
Stewart and Bacanovic are on trial together on charges that they lied to the federal government about the circumstances surrounding her sale of ImClone stock. She is also charged with securities fraud on the theory that by allegedly lying about the ImClone sale, she defrauded shareholders in her own company, Martha Stewart Living Omnimedia Inc., the publishing, retail and broadcast empire built on her ideas about gracious living. Stewart's company's shares dropped when her legal problems became public.
Faneuil's testimony is expected to continue today.
Bacanovic and Stewart have said she sold the ImClone stock because they had previously decided to do that when the stock hit $60, not because she got a tip about Waksal, who also is a friend of Stewart's.
In hostile cross-examination, Bacanovic attorney David Apfel tried to suggest that Faneuil had been a government witness in exchange for a lesser conviction and sentence on a charge related to his actions in the Stewart case. In October 2002, Faneuil pleaded guilty to a misdemeanor charge that he had accepted gifts in exchange for covering up that he had told Stewart about Waksal's shares.
