Deal in works for testimony against Stewart
Merrill trading assistant seeks immunity from prosecution
By Charles Gasparino
and Jerry Markon
THE WALL STREET JOURNAL
msnbc.com
Aug. 8 — Federal investigators are negotiating an agreement with a Merrill Lynch & Co. trading assistant in which he could receive immunity from prosecution in exchange for testimony against Martha Stewart in the ImClone Systems Inc. insider-trading case, said people familiar with the matter.
THE NEGOTIATIONS come as another major shoe dropped in the ImClone inquiry. On Wednesday, a federal grand jury indicted ImClone founder Samuel Waksal on insider-trading charges for trying to sell his ImClone shares — and tipping off family members to sell their stock — before the company’s Dec. 28 announcement that the Food and Drug Administration wouldn’t review the biotechnology company’s cancer drug. The indictment also includes additional counts of perjury, obstruction of justice and bank fraud, a more serious charge that carries a maximum 30-year prison term. Mr. Waksal’s lawyer said that his client is “presumed to be innocent, and he will respond to these charges as required.”
Prosecutors haven’t struck a deal with the Merrill trading assistant, Douglas Faneuil. But if a pact is reached, it could be bad news for Ms. Stewart, who sold nearly 4,000 ImClone shares on Dec. 27. Ms. Stewart has said that she sold her shares because of a previously arranged agreement with her broker and Mr. Faneuil’s boss, Peter Bacanovic, to sell when the price of ImClone fell below $60 a share.
Federal investigators now have their doubts about her story. First, there was no official record at Merrill showing that an agreement existed, just some notes from Mr. Bacanovic. Moreover, prosecutors recently widened their investigation of Ms. Stewart beyond insider trading to include possible obstruction of justice and making false statements about why she sold, after hearing Mr. Faneuil’s account of the events.
Mr. Faneuil, 26 years old, has told Merrill executives and federal investigators that Ms. Stewart sold her shares after he advised her, at the behest of Mr. Bacanovic, to take the action because Mr. Waksal and members of his family also were selling their stock, people close to the matter said.
SIGNS OF CHARGES SOON?
Some outside legal specialists say Mr. Faneuil’s role as a potential witness shows that prosecutors are escalating their probe and could be seeking to file charges soon. “If they reach a deal with Faneuil, it means that the Justice Department is likely to push for charges because it believes her story lacks credibility,” says securities lawyer Jacob Zamansky, who is uninvolved in the ImClone case. “This means they think his testimony could be the smoking gun because there is no written stop-loss agreement.”
Ms. Stewart’s lawyer, Robert Morvillo, didn’t return a call for comment. Mr. Faneuil’s attorney, Marc Powers, had no comment. Mr. Bacanovic’s lawyer didn’t return a call.
Mr. Faneuil has emerged as a key witness in the government’s wide-ranging investigation of Ms. Stewart’s ImClone sale, which was just before the stock dropped on the FDA news. Mr. Faneuil initially supported Ms. Stewart’s version of the events, telling federal investigators that she had a previously arranged “stop-loss agreement” to sell the stock when it fell in value.
Mr. Faneuil later changed his story, casting doubt on Ms. Stewart’s account. His account could add weight to the prosecutors’ probe, lawyers say. Obstruction-of-justice and false-statement charges each carry maximum prison terms of five years.
Federal prosecutors want Mr. Faneuil to plead guilty to a charge of making a false statement in a government investigation — a felony — in exchange for being a witness in a possible case against Ms. Stewart, these people say. Under the potential pact, Mr. Faneuil could receive some sort of leniency in his punishment, such as no jail time, these people say. Lawyers for Mr. Faneuil are pushing for a possible deal that would shield him from any prosecution using his value as a witness in any case against Ms. Stewart as leverage, these people say.
FACTOR IN FANEUIL’S FAVOR
There is one major factor in Mr. Faneuil’s favor. Prosecutors could have a weaker case against Ms. Stewart if they indict Mr. Faneuil for making false statements and don’t reach a formal agreement. Some legal specialists say such a move would prevent prosecutors from using whatever evidence he provided during at least one initial meeting he had with federal investigators. That is because potential witnesses such as Mr. Faneuil who discuss the possibility of formal cooperation with prosecutors are often given what is known as a “proffer,” which means that whatever they say can be used in a case only if they reach a formal agreement with prosecutors.
Mr. Waksal was arrested in June on insider-trading charges but has been engaged in plea discussions with federal prosecutors, which had delayed an indictment in the case. Those talks collapsed this week over prosecutors’ insistence that Mr. Waksal serve at least seven to 10 years in prison, and his reluctance to go along, people close to the matter say.
These people say Mr. Waksal could still wind up pleading guilty, but it is unclear if further talks are scheduled.
Mr. Waksal also had been urging prosecutors to not file charges against his father and daughter, who also sold shares of ImClone before the FDA news, but prosecutors refused, these people say. Separate plea negotiations are now continuing for lawyers for Mr. Waksal’s daughter, Aliza, they add. A lawyer for Ms. Waksal didn’t return a call for comment; a lawyer for his father, Jack Waksal, had no comment about the indictment.
— Colleen DeBaise contributed to this article.
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