The business manager for Westport’s Martha Stewart testified today that her broker thought ImClone Systems Inc. was “a dog’’ and wanted her to sell the stock six weeks before she unloaded her shares.
The testimony supports Stewart’s claim that she did not unload her ImClone stock because of “a secret tip’’ company founder Sam Waksal was dumping his shares, as prosecutors contend.
The government says Stewart and Peter Bacanovic, her Merrill Lynch & Co. broker, conspired to hide the reason she sold a day before ImClone announced that regulators had rejected the company’s new cancer drug.
Heidi DeLuca, a business manager for both Stewart and her company, Martha Stewart Living Omnimedia Inc., offered jurors an explanation for her boss’s stock sale that is consistent with defense claims of a prior agreement to sell when ImClone dipped below $60.
DeLuca said Bacanovic raised the prospect of Stewart getting rid of her ImClone shares as early as Nov. 8, 2001.
“He told me he felt ImClone was a dog,’’ DeLuca said. Bacanovic wanted to set a sale price of $60 or $61, she said, “just in case the shares continued to fall, as a safeguard.’’
Stewart and Bacanovic are on trial in Manhattan federal court for obstruction of justice, accused of lying to investigators about why she sold about 4,000 ImClone shares.
The defendants both claim Stewart had a pre-existing sell order for ImClone. Prosecutors contend that’s a cover story concocted to hide the fact that she was alerted to the Waksals’ trading.
ImClone shares had sold for as high as $73.83 at the close of trading on Dec. 5, 2001. On Dec. 27, when Stewart sold her stock, the closing price was $58.30.
The following day, after the U.S. Food and Drug Administration rejected ImClone’s application for Erbitux, a drug for treating colon cancer, shares fell $3.05 to $55.25.
The FDA approved Erbitux on Feb. 12. ImClone and its partner, Bristol-Myers Squibb Co., said they will begin shipping the drug Tuesday.
ImClone shares rose $1.45 today to close at $41.35 in New York Stock Exchange composite trading.
Even before Bacanovic criticized ImClone in November 2001, Stewart was willing to sell her shares, DeLuca said.
When Bristol-Myers made a tender offer for ImClone in October 2001, Stewart offered to sell all 5,000 shares in her personal account, DeLuca testified.
“She told me to tender all of them,’’ said DeLuca, who has been employed by Martha Stewart Living since 1999 and also handles Stewart’s personal accounts.
Bristol-Myers bought 21.43 percent of ImClone’s stock through the tender, leaving Stewart with 3,928 shares.
Also in October 2001, Stewart sold more than 50,000 ImClone shares her company held in an employee pension account, DeLuca said.
Stewart alone is also accused of securities fraud for making false public statements professing her innocence.
Prosecutors say her comments were designed to insulate her company from the trading scandal and prop up its share price.
She faces 10 years in prison if convicted.
This morning, a former lawyer for Douglas Faneuil, an aide to Bacanovic and the government’s main witness, said he never told his client to lie to federal investigators, dealing a setback to defense efforts to discredit the brokerage assistant.
Faneuil testified that under orders from Bacanovic, he told Stewart that Waksal was selling all his ImClone stock, then sold all her shares and lied about it to investigators.
Within days of Stewart’s sale, Merrill alerted regulators to her trade and those by the Waksals.
Faneuil’s first lawyer was called as a defense witness today, as an attorney for Bacanovic sought to show that the former broker’s aide had engaged in a pattern of lying.
Jeremiah Gutman, who represented Faneuil in 2002 while the Securities and Exchange Commission was investigating possible insider trading of ImClone shares, said, “I told him he should not lie.’’
Faneuil testified earlier this month that he had already lied about Stewart’s ImClone trade in a Jan. 3, 2002, telephone interview with the SEC, and it was after that he decided to hire Gutman.
The lawyer initially advised him to come forward and tell the truth, he said, though at a later session, Faneuil said, Gutman told him he had met with a Merrill lawyer who said the firm had reached a deal with the government about the ImClone probe.
Faneuil testified that Gutman told him, “Merrill Lynch would hand over the Waksals on a silver platter in exchange for the government’s looking the other way on the Martha Stewart situation.’’ Faneuil said his lawyer told him to “lay low,’’ rather than come forward and tell the truth to the SEC.
Merrill has denied any deal was reached with the government over the ImClone trades.
In his testimony today, Gutman said he told Faneuil in January 2002 that he had spoken with Merrill lawyer David Marcus, who said a deal was in the works.
“He told me he was working on making a deal, and the deal involved getting all Merrill Lynch people off the hook and letting the chips fall where they may,’’ Gutman testified.
Gutman said he told Faneuil at their first meeting “to tell the truth.’’
Bacanovic’s lawyer, Richard Strassberg, then asked Gutman whether he later told Faneuil to lie.
While denying he did, Gutman acknowledged that he warned Faneuil that if he told “a different story’’ to the SEC, he’d be “sticking his neck out’’ and could be charged with a crime.
Gutman said he suggested that Faneuil invoke his Constitutional right against self-incrimination.
Faneuil started to cry, saying he was afraid of “merciless, moral-less people,’’ Gutman said. From his testimony, it wasn’t clear who Faneuil was referring to.
Earlier today, U.S. District Judge Miriam Goldman Cedarbaum advised lawyers that she’d reserve her decision on whether to dismiss some of the charges
