Days of Our Lives
THE MARTHA MYSTERY
• Merrill Places Brokers on Leave Over Stewart's Stock Sale
06/22/02
• Stewart's Broker Faces Congressional Panel
06/21/02
• Stewart's Charisma May Come Back to Haunt Her
06/19/02
• Stewart's Broker Faces Lawmakers' ImClone Queries
06/18/02
• Stewart, Broker Differ on Timing Of Order to Sell ImClone Shares
06/17/02
• Stewart Faces Inquiry Over Sale of ImClone Shares
06/14/02
Merrill Worker Casts Doubt
On Stewart's Stop-Loss Pact
By CHARLES GASPARINO and SUSANNE CRAIG
Staff Reporters of THE WALL STREET JOURNAL
A Merrill Lynch & Co. sales assistant who handled a controversial trade of ImClone Systems Inc. stock for Martha Stewart provided new information late last week that contradicts what the home-design maven and her broker said about why the stock was sold when it was, people with knowledge of the matter say.
Ms. Stewart sold shares of the biotech stock on Dec. 27, one day before the company announced some damaging news about its experimental cancer drug, Erbitux, raising the specter of insider information, which Ms. Stewart denies.
Statements by the sales assistant, Douglas Faneuil, cast doubt on the information provided by both Ms. Stewart and her Merrill broker, Peter Bacanovic, that she had sold her shares of Imclone in December because of a previously arranged "stop-loss order," people close to the matter say. Merrill officials now have some doubts that a stop-loss order ever existed based on Mr. Faneuil's statements, these people add.
A Merrill spokesman declined to comment.
Federal prosecutors, market regulators and Congress are all looking into the suspicious trading of ImClone stock in the days leading up to ImClone's announcement Dec. 28 that the Food and Drug Administration had refused to consider an application for its cancer-fighting drug. Earlier this month, ImClone's former chief executive, Samuel Waksal, was charged with insider trading for allegedly tipping off family members and trying to sell his own shares before the FDA's news was made public. Ms. Stewart is a close friend of Mr. Waksal, who at one point dated Ms. Stewart's daughter.
Now, investigators are examining other people who may have been tipped off about the FDA action, including Ms. Stewart and her broker, Mr. Bacanovic -- a former ImClone employee who serves as a financial adviser for a coterie of well-heeled clients with ties to Mr. Waksal. Mr. Bacanovic isn't only the broker for Ms. Stewart, but also for Mr. Waksal himself, and members of his family, such as his daughter, Aliza, who investigators say sold ImClone shares after being tipped off by her father about the FDA rejection.
Another person who sold shares around the time of the FDA notice is Bart Pasternak, a Westport, Conn., surgeon and friend of Ms. Stewart. Dr. Pasternak has come under congressional scrutiny for the timing of his sale of ImClone shares, made around the same time as Ms. Stewart's trade. In an interview, Dr. Pasternak says he has cooperated fully with authorities and has no further comment.
Ms. Stewart has denied wrongdoing in the matter.
Information obtained by legal officials at Merrill Lynch late last week could be at odds with Ms. Stewart's previous statements, as well as those of Mr. Bacanovic's, about the existence of a stop-loss order on the stock. Ms. Stewart and Mr. Bacanovic both have said that stop-loss agreement kicked in when shares fell below $60. The existence of a stop-loss order is important for Ms. Stewart, because it would indicate that she didn't trade using inside information about the FDA's action when she sold her 3,928 shares of ImClone stock Dec. 27.
One problem with nailing down these claims is that Merrill has no internal policy requiring stop-loss orders to be logged into the firm's computer system. Mr. Bacanovic has told Merrill and investigators from the Securities and Exchange Commission that the order was made orally to him and that he has written notes to back up this claim.
But Merrill officials now have doubts that a stop-loss order ever existed, based on the information provided by Mr. Faneuil, who executed the trade for Mr. Bacanovic as his sales assistant. Mr. Faneuil, who has been at the firm only 12 months, has told Merrill officials he was unaware of any agreement when he placed the order to sell Ms. Stewart's stock, these people say.
Merrill legal officials believe he would have known about the stop-loss order if one had existed, these people add. This information led Merrill to take action Friday, placing Mr. Bacanovic and Mr. Faneuil on paid administrative leave. The firm cited "factual issues regarding a client transaction" as the reason for the move, and declined to elaborate.
Mr. Faneuil wasn't available to comment. His lawyer, Marc Powers, couldn't be reached to comment on his client's discussion with Merrill's legal department. In a statement made late last week, Mr. Powers said Mr. Faneuil "spoke with Merrill Lynch's attorneys ... and he plans to cooperate with Merrill's internal investigation and with the SEC and the U.S. attorney's office."
Mr. Bacanovic couldn't be reached for comment, and his lawyer had no comment.
A spokeswoman and an attorney for Ms. Stewart weren't available for comment. In a statement issued June 18, Ms. Stewart said, "The sale was based on information that was available to the public that day. The stock price had dropped substantially, to below $60. Since the stock had fallen below $60, I sold my shares, as I had previously agreed to do with my broker."
Investigators from the House Energy and Commerce Committee plan to interview Mr. Bacanovic this week as part of their larger investigation into alleged illegal trading of ImClone shares, said Ken Johnson, a spokesman for the committee. They may also interview Mr. Faneuil, said people close to the matter. Mr. Johnson adds that during the past couple of weeks, congressional investigators have doubted that there was a stop-loss order on Ms. Stewart's shares, because Ms. Stewart said she placed the order in November, while Mr. Bacanovic said it was placed in December.
Meanwhile, he said the committee is seeking Mr. Bacanovic's client list "to try determine if anyone else dumped ImClone stock" before the FDA news was made public.
Write to Charles Gasparino at charles.gasparino@wsj.com and Susanne Craig at susanne.craig@wsj.com
Updated June 24, 2002 |
