dispatches from the martha stewart trial
From: Henry Blodget
Subject: Faneuil to the Rescue
Wednesday, Feb. 4, 2004, at 8:11 AM PT
Chance of conviction
Tuesday, Feb. 3: 18 percent
Douglas Faneuil's initial testimony was credible, offsetting a mind-numbing morning. The Martha Meter's chances of conviction remain at 18 percent.
By midafternoon on Feb. 3, the prosecution of Martha Stewart and Peter Bacanovic had flat-lined. Four hours of direct examination, cross-examination, and re-direct examination of Merrill administrator Judy Monaghan had yielded exactly one potentially suspicious fact—the timing of Douglas Faneuil's raise in March 2002—and the government's case seemed headed for the morgue. Just before the gurney was wheeled away, however, prosecutor Karen Patton Seymour grabbed the defibrillator paddles and shocked the patient back to life:
"Your Honor," she said. "The government calls Douglas Faneuil."
Faneuil: The star witness takes a turn
Douglas Faneuil, it turns out, is a beanpole. There was no wind in the courtroom, but if there had been, his suit would have flapped. While being sworn in, he hunched over the guard like a NBA player leaning over a coach. "My knees are long," he said, endearingly, to the judge, when explaining why he couldn't move the witness chair closer to the microphone.
Between the defense and the media, Faneuil has been so trashed of late that expectations were low. He would have exceeded them even if they had been high. Faneuil was polite, deferential, entertaining, likable, and, dare I say it, credible (pre-cross-examination, of course). The interplay between him and Seymour, moreover, was masterful: Standing at the lectern, 15 feet in front of Faneuil, Seymour looked like a stern mother helping rehabilitate her formerly wayward son.
Did there come a time at Merrill Lynch when you did something illegal? Karen Patton Seymour asked.
"Yes," said Douglas Faneuil.
What did you do? asked Seymour.
"I told one client what another client was doing and then lied about it to cover it up," said Faneuil.
The getting-to-know-you sequence was beautifully choreographed. Faneuil confessed to an "inaccuracy" on the résumé he gave Merrill Lynch when he applied for his job: He said his grade point average was 3.5 when in fact it was 3.44. He described Peter Bacanovic as the "best boss I ever had … demanding yet appreciative"—an ideal, credibility-enhancing prelude to accusing Bacanovic of a felony. Unsure whether he could repeat what one of Sam Waksal's daughters had said when she had learned that ImClone was already trading down on the morning of Dec. 27, 2001, Faneuil asked the judge if it was OK if he swore in court.
Seymour and Faneuil worked together for more than an hour, gradually building toward the cathartic crescendo of the first moment of truth (or lie, depending on one's perspective). Faneuil described his call with Aliza Waksal on the morning of Dec. 27, 2001, in which she placed an order to sell nearly 40,000 ImClone shares. He described the calls from Waksal's other daughter, Elana, who soon dumped her own shares. He described the calls and faxes from Sam Waksal's accountant, who demanded that Faneuil "ignore all other business" and get Waksal's ImClone shares transferred and sold. Then, finally, he described the call with Peter Bacanovic just after 10 a.m., in which Bacanovic asked him to call Martha Stewart.
We talked initially about [Sam Waksal's accountant] being so pushy, Faneuil began. Peter was trying to calm my nerves, saying [the accountant] was always like that. Then we talked about the morning's events. Suddenly, Peter said, "Oh my God, get Martha on the phone."
Initially, this transition struck me as odd, almost as if Faneuil had dropped a line. The "suddenly-Peter-said-oh-my-God" phrase seemed to come out of nowhere: Faneuil and Bacanovic had already spoken that morning—when Faneuil informed Waksal's accountant that he couldn't sell Waksal's shares, the accountant reportedly said, "Do me a favor, just ask Peter"—so I couldn't imagine what Faneuil might have told Bacanovic now that so startled him. Then I thought of a context in which the remark might have made sense: "Oh my God, I just remembered, Martha owns this thing. Get her on the phone. …"
I called Martha Stewart, Faneuil continued, and her administrative assistant—Ann Armstrong, I believe—answered. It wasn't a conversation I listened to carefully. Peter did all of the talking. I remember hearing that Martha was on a plane, but that's really all I remember.
Faneuil's saying he did not remember this conversation helps his credibility—if he is simply selling out to the government, he might as well really sell out—but it will hurt the prosecution's ability to prove that Bacanovic lied about the message he left for Stewart (now there is only one witness: Ann Armstrong).
Peter called me back after that. He said, "Listen, Martha's going to call. You've got to tell her what's going on." I said, can I tell her about Sam? He said, "Of course. You must. That's the whole point."
This, of course, is the money shot. The first part is ambiguous: "You've got to tell her what's going on" might mean "You've got to tell her about the high volume, price decline, rumors that Erbitux will be rejected, etc." The second part, however, isn't.
Given Faneuil's demeanor, the vitriolic cross-examination that Peter Bacanovic's attorneys have been building up to for the last week might backfire: Attacking him might seem as mean and unfair as attacking the very pregnant Emily Perret would have. Bob Morvillo's approach—a good kid, who, on the morning of Dec. 27, 2001, was in way over his head—will probably be more effective. Still, in two days, after the cross-examination, I imagine that so little will be left of Douglas Faneuil's carcass that even the vultures will give up and fly away. Today, however, he and Karen Seymour had the stage to themselves, and they put on a great show.
Chance of conviction
Wednesday, Feb. 4: 28 percent
Based on Douglas Faneuil's credible, dramatic testimony—as well as his survival of the first two hours of cross-examination—Martha Stewart's chances of conviction rise from 18 percent to 28 percent. Peter Bacanovic's rise further.
Now we know why the defense has tried so hard to discredit Douglas Faneuil: Despite his glaring weaknesses (as the jury has now heard ad infinitum, he is an "admitted liar" and an "admitted criminal"), he is a superb witness. The events of Feb. 4, in fact, illustrated not only how effective an ostensibly vulnerable witness can be, but how easily an ostensibly slam-dunk cross-examination can go awry.
The day began with an exploration of Faneuil's "drug use"—the same drug use that, last week, in the marble hallways outside the courtroom, had morphed into a drug "problem." According to Faneuil, the "problem" amounted to taking ecstasy a few times and smoking pot once a month. The absurdity of grown men trying to imply that this practice had addled Faneuil's perceptions and/or made him so terrified of being prosecuted for illegal drug use that he would say anything to pacify the government wasn't lost on the judge. Had the jurors been present, it wouldn't have been lost on them, either. When the drug discussion was (finally) over, the jury was summoned, and Karen Patton Seymour and Faneuil picked up where they had left off.
Faneuil: Call him "Sir" like you mean it
As the defense would later point out (endlessly), Faneuil's testimony was obviously rehearsed. With a few exceptions, however, the rehearsal appeared mainly to instill in Faneuil the Zen-like calm necessary to weather two hours of agonizing cross-examination—agonizing not because it was damning but because it was annoying. Before then, however, came three hours of direct testimony, much of which amounted to a demonstration of the art of effective storytelling. Faneuil anchored his descriptions with vivid, specific details. He used language that was forceful and direct. He appeared sober, serious, and—without being pathetic about it—contrite. He was never defensive: His body language said, "I am sorry for what I did, but I am taking responsibility for it, and I am relieved that I no longer have anything to hide." He considered his answers carefully and provided several that didn't help the government.
On Dec. 31, 2001, Faneuil said, he was approached by Judy Monaghan, the Merrill administrator who testified earlier. Monaghan asked Faneuil "what was going on with these ImClone trades," and he "took her through the morning's events." Then he called Peter Bacanovic and told him that Monaghan was asking questions. According to Faneuil, Bacanovic reacted violently:
He said, "The reason for Martha Stewart's sale was tax-loss selling. It was tax-loss selling." I tried to say something, but I couldn't get a word in edgewise. He cut me off every time. He kept saying, "The reason for her sale was tax-loss selling!" He completely ignored me and wouldn't let me speak. Then, finally, he finished and there was silence. "OK?" he said. "OK?" I said, "OK." [Note: All italicized testimony is paraphrased]
Faneuil testified that his first interview with the SEC focused on Sam Waksal: Only "1 percent" of it, he said, was about Martha Stewart. He said he told the SEC that Martha Stewart called, asked for a quote on ImClone, and then decided to sell. He said he didn't tell the SEC anything about Sam Waksal selling.
Why not? Karen Seymour asked.
"I suppose the short answer is that I was afraid," Douglas Faneuil said.
Soon thereafter, Faneuil said, Stewart's bookkeeper called and yelled that the ImClone trade totally screwed up Stewart's tax-loss selling. I called Peter immediately. I said, "What is going on?" Again, he began screaming: The reason for the sale is that we came up with a stop-loss order agreement at $60. We had a stop-loss order at $60. Again, I couldn't get a word in edgewise. At the end, he said, "OK? OK?" I said "OK." For some of the discussions with Bacanovic, Faneuil borrowed colleagues' cell phones. Why? Seymour asked. Because I didn't know whether Merrill's phone lines were recorded, and I wasn't comfortable having these discussions on a recorded line. When Peter Bacanovic returned from vacation, Faneuil said,
he took me out of office to Dean & Deluca, a café nearby. He sat me down and told me everything was going to be all right. He told me his history of working at Merrill, how he had worked for a while in a mailroom in Hollywood because he thought he wanted to be an agent, and then he decided to become a broker. He told me how after only seven years he had become one of the most successful brokers in the office, how he had never dreamed he would be so successful, and how everyone in his family was proud. Then he told me about his relationship with Martha Stewart. He said she was difficult and frustrating sometimes, but that they were extremely loyal to each other. Then I said, let's talk about the 27th. I was there, Peter. I know what happened. He put his hand on my shoulder and said, with all due respect, you don't.
Now, there are two ways of interpreting this story (and many that followed), even assuming that every word is true. First, one can view the events as Faneuil views them: Bacanovic recognized that Faneuil could destroy him, and, therefore, with increasing intensity, tried to schmooze, bully, and bribe Faneuil into keeping silent. Second: Bacanovic recognized that Faneuil believed, incorrectly, that they had done something wrong, and, therefore, with increasing intensity, tried to convince him that they hadn't. Whichever way the jury views it, Faneuil's take is clear: In the Dean & Deluca meeting, Faneuil said, Bacanovic also repeated the reason for Stewart's sale. Faneuil didn't recall, however, "which cover story it was," the tax-loss selling story or the stop-loss order story.
Soon, Faneuil said, Bacanovic offered him a plane ticket to Argentina, which he didn't accept. Then Bacanovic called Faneuil into his office and said, "I've spoken to Martha, I've met with her. Everyone's telling the same story. It was a $60 stop-loss order. We're all on the same page. And it's the truth. It's a true story." Then Bacanovic showed Faneuil the allegedly altered worksheet, and said, "Look what I found. See? See?'"
By 2:30 in the afternoon, after walking Faneuil through his decision to come forward and tell the truth—I felt that the cover-up had become part of my daily existence; I couldn't take it anymore—Karen Seymour was done. Douglas Faneuil took a deep breath, and readied himself for the onslaught.
On paper, obviously, Faneuil screams for the pit-bull cross-examination approach. In reality, however, he comes across as a likable, sincere 28 year-old who made mistakes. As a result, by repeatedly addressing Faneuil as "Sir" in a tone that suggested that he really meant "Shithead," Peter Bacanovic's attorney David Apfel didn't help himself. His question construction also seemed poorly tailored to the flesh-and-blood Faneuil. "Isn't it a fact that … ," Apfel often sneered, and then failed to establish a fact worthy of indignation. "So what you are telling us is that … ," Apfel often scoffed, only to have Faneuil patiently recast the mischaracterization to make it accurate. "So you would admit that … ," Apfel often stated, and then added an assertion that was untrue, previously testified to, or benign. Faneuil didn't let Apfel put words in his mouth, and he didn't let him twist prior testimony or make stupidly simplistic assertions. He also never got indignant or impatient himself, either of which would have destroyed him.
Apfel devoted a full hour to demonstrating how much "rehearsal" Faneuil had had, at one point asking if the preparation had included acting lessons ("Absolutely not," Faneuil said, with the perfect amount of emphasis). Sometimes, such sarcasm is funny and effective. This time, it just made Apfel look like an asshole. |
