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Witness in Stewart Case Feared Losing Job

Posted on: Thursday, 5 February 2004, 06:00 CST

The star witness in the Martha Stewart trial testified Thursday that he believed he would lose his job unless he lied to back up her version of why she dumped her ImClone Systems stock.

Douglas Faneuil, a former Merrill Lynch & Co. assistant, made the remark under cross-examination by a lawyer for Stewart's former stockbroker.

"I felt I would be fired if I didn't lie," he said.

Faneuil has already testified that broker Peter Bacanovic, Stewart's co-defendant, pressured him into lying to investigators about why Stewart sold 3,928 shares of ImClone on Dec. 27, 2001.

Faneuil claims he passed a tip to Stewart that ImClone founder Sam Waksal was trying to sell his shares. Stewart and Bacanovic say they had a pre-existing agreement to sell when the stock hit $60.

Defense lawyers also tried Thursday to show Faneuil routinely joked with Bacanovic - even as he claims the broker intimidated him into covering up the facts of Stewart's stock sale.

But the judge blocked the lawyers from putting e-mails into evidence showing that Faneuil had an easygoing relationship with Bacanovic.

On the witness stand Thursday, Faneuil admitted he joked with Bacanovic at work even as the broker was pressuring him. Faneuil described their relationship as "schizophrenic."

"Everything having to do with the events of Dec. 27 was extremely compartmentalized," Faneuil said.

Bacanovic attorney David Apfel asked Faneuil whether Bacanovic had specifically asked him to lie to investigators. Bacanovic had not, Faneuil said - but "I understood what he was telling me."

The defense began cross-examining Faneuil, 28, on Wednesday after he delivered damaging testimony against the millionaire homemaking entrepreneur and her stockbroker. How jurors rate Faneuil's credibility is expected to be a critical component of how they judge whether Bacanovic and Stewart intended to break the law.

Under questioning from Apfel on Wednesday, Faneuil admitted he has repeatedly used marijuana and Ecstasy - and on rare occasions cocaine and the party drug ketamine, also known as Special K. But said he never used any of those drugs while on the job at the brokerage.

In painstaking detail, Apfel also walked Faneuil through some of the dates of his many meetings with the government since he changed his story in June 2002 and implicated Stewart and Bacanovic. Faneuil had earlier supported Stewart and Bacanovic's version of the stock sale.

Apfel appeared to suggest that Faneuil was cooperating with the government in part to avoid prosecution for his drug use. Faneuil said he hoped he would not be charged with drug offenses.

"Just like they have given you assurance that if you cooperate, they won't go after you for the lies that you told in January and March of 2002, is that right?" Apfel asked.

"As long as I tell the truth now," Faneuil answered.

On Wednesday, Faneuil testified that he had tipped Stewart - on Bacanovic's orders - that Waksal was dumping his ImClone shares.

"Peter thought you might like to act on the information that Sam is selling all of his shares," Faneuil said he told Stewart in the call.

"All of his shares?" Faneuil said Stewart answered.

Faneuil said Stewart asked him for a quote on ImClone stock, then declared: "I want to sell." Faneuil sold Stewart's shares immediately, at proceeds of more than $225,000.

The next day, the government released a negative report about an experimental ImClone cancer drug. The report sent ImClone shares down by nearly 20 percent. The government estimates Stewart saved $51,000 by getting out early.

Cross-examination of Faneuil was expected to continue into Monday. Court will not be in session Friday.

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