| Stewart Took Insider Tip and Dumped Stock -Witness
NEW YORK (Reuters) - Martha Stewart (news - web sites) dumped her shares in a biotech firm after being given an insider tip that the company's chief was selling his shares, a witness said on Wednesday in the most damaging testimony against her to date.
But while prosecutors used their star witness to make the case against the trendsetter, Stewart's lawyers sought to undermine former Merrill Lynch employee Douglas Faneuil by painting him as a marijuana-smoking drug user.
Faneuil, a former assistant to Stewart's broker, said he gave the tip to the businesswoman by telephone on Dec. 27, 2001, when she sold nearly 4,000 shares of ImClone Systems Inc. stock for $228,000.
In his second day of testimony, Faneuil admitted illegally tipping off Stewart that Sam Waksal, ImClone's then chief executive, and his two daughters were dumping their shares.
"I told her that Sam was trying to sell," Faneuil explained to jurors, referring to Waksal.
Stewart asked about ImClone's stock price and then "she said 'I want to sell all my shares,"' Faneuil told the hushed courtroom.
His testimony is the cornerstone for the government's case against Stewart and her former Merrill Lynch broker and friend Peter Bacanovic, both charged with lying to cover up the suspicious trade.
Stewart and Bacanovic maintain they had a preexisting order to sell ImClone stock if it dropped below $60 a share.
If convicted of the most serious charge against her, securities fraud, Stewart faces up to 10 years in prison.
DRUG USE
The defense hopes to undermine the 28-year-old's credibility. Earlier, Stewart's lawyers questioned him about past marijuana use before the jury was called into court.
"During my period at Merrill Lynch I used (marijuana) about once a month," Faneuil said in response to questions from lead Stewart attorney Robert Morvillo.
Faneuil admitted to using Ecstasy several times and said he previously "experimented with other kinds of drugs" socially.
Morvillo said he should be allowed to bring up the use in front of jurors, saying it relates to credibility and draws into question whether he is testifying for the government to avoid any possible drug-related charges.
Prosecutor Karen Patton Seymour called questions about Faneuil's drug use "ridiculous." U.S. District Judge Miriam Goldman Cedarbaum said she would rule on the matter later.
Faneuil first took the stand on Tuesday when he said Bacanovic, his former boss, had ordered him to pass the confidential information to the Stewart. Bacanovic, on vacation at the time, had left a message for Stewart to call Faneuil about Waksal, the witness said.
When he answered the phone, Faneuil said, he heard, "Hi this is Martha. What's going on with Sam?"
Faneuil said that when he explained that Waksal was trying to sell ImClone stock, Stewart asked "All of his shares?" The witness then informed her that Waksal was trying to sell all the shares he held at Merrill Lynch.
After ordering the sale of her own shares, Stewart told Faneuil to send her an e-mail verifying the trade.
A few days later, Faneuil said, he was questioned by a Merrill Lynch manager about the ImClone trades. He said he asked Bacanovic what he should say. Faneuil then mimicked an agitated Bacanovic, who repeatedly told his assistant, "The reason for Martha's sale was tax loss selling."
Tax loss selling is a strategy used at the end of the year to offset taxable stock gains with losses from stock trades.
Faneuil said Stewart's trade was not part of a tax strategy because there was a profit, not a loss, from the sale.
Faneuil initially supported Bacanovic's explanation and told investigators looking into the ImClone sale that Stewart sold the shares for tax reasons. He later recanted, pleaded guilty to a misdemeanor and agreed to testify against his former boss and Stewart.
Lawyers for Stewart and Bacanovic are expected to start questioning Faneuil later on Wednesday. | |
