Martha Stewart Trial: Damaging Testimony from Prosecution Witness

The jury trying Westport’s Martha Stewart today heard the most damaging testimony yet in her stock fraud trial in a federal courtroom in Manhattan.

A former Merrill Lynch assistant said Stewart told him to sell her ImClone Systems stock after he advised her that the company founder was trying to dump his own shares.

Douglas Faneuil, under questioning from the prosecution, told the jury about a phone call he received from Stewart on Dec. 27, 2001.

Faneuil said he told her that ImClone founder Sam Waksal was trying to sell all his shares of the stock – and she ordered him to do the same.

He gave the testimony after he admitted outside the jury’s presence that he had used marijuana and Ecstasy while he was employed by Merrill Lynch.

“Hi, this is Martha,” he quoted Stewart as saying at the beginning of the conversation. Faneuil said he advised her that she “might want to act on the information that Sam’s selling all of his shares.”

“All of his shares?” Stewart replied, according to Faneuil.

“What he does have here, he’s trying to sell,” Faneuil testified that he answered.

According to Faneuil, Stewart then told him to sell off all her shares at market price – contradicting her story that there was a standing “stop loss order” to sell the stock if it fell to $60 a share.

Faneuil testified that he never heard anything about the order until more than a week after the sale, when an agitated Peter Bacanovic—Stewart’s broker and co-defendant—insisted that was the case during a phone call.

Faneuil, on the witness stand, imitated a breathless Bacanovic insisting the sale was legitimate. Faneuil said he was browbeaten until he agreed with the broker.

Waksal, a former jet-setting New York socialite, is serving a seven-year prison sentence after admitting he instructed his family to sell ImClone shares when he got word the government was about to issue a negative report on ImClone’s new cancer drug.

Earlier, defense attorney Robert Morvillo gave a glimpse at the defense strategy of undermining the witness when he grilled Faneuil about the young assistant’s drug use while employed at Merrill Lynch.

Faneuil, in a court session without the jury present, said he smoked marijuana with friends “about once a month.” He also acknowledged using the club drug Ecstasy two or three times, but insisted he had never used any drugs while at work.

“It intensifies your tactile sensations and emotions,” Faneuil said of Ecstasy. U.S. District Judge Miriam Goldman Cedarbaum said she would restrict Morvillo’s questioning in front of the jury, but did not elaborate.