A
t Merrill Lynch, the mounting publicity over the Waksal charges and the revelation that Martha Stewart had sold her ImClone shares had no evident effect on Peter Bacanovic. Periodically, he’d look to Faneuil for reassurance. “We’re on the same boat, right, Doug?” he’d ask. Faneuil would nod or answer, “Yeah,” but he did so halfheartedly. But there were no more invitations to breakfast or lunch, and no more offers of free airline tickets.
With Waksal’s arrest and insider trading charges, the scrutiny of Martha Stewart quickly intensified. MSO stock plunged again the day of Waksal’s arrest, dropping 12 percent. Stewart was deluged with media inquiries about her sales of ImClone shares and ties to Waksal. She had her longtime public relations adviser and close confidante Susan Magrino issue a statement, carefully reviewed by her lawyers. The statement reiterated the points that Savarese had shared with the
Journal
and concluded, “In placing my trade I had no improper information. My transaction was entirely lawful.”
The statement seemed to stabilize the stock, but it unleashed a storm of media coverage. The irreverent
New York Post
launched a steady stream of headlines : “Martha’s Prison Everyday Collection,” “Martha’s Stewing,” and “Martha in Hell’s Kitchen.” The
Daily News
countered with “Diva Martha’s Now in the Soup.” The story vaulted to television, with
Good Morning America
taking it up on June 17. David Letterman joked, “I was watching her show and she had to accept a subpoena wearing an oven mitt.”
The next day Stewart knew she would face intense questioning at a long-scheduled investor conference. She couldn’t further rattle the markets by canceling; indeed, she had to act as though nothing significant were happening. As Wall Street analysts and MSO shareholders gathered, she distributed another statement in an effort to ward off further questioning, adding a new dimension to her public defense:
“Earlier this year, I spoke with the SEC and the U.S. Attorney’s office and have cooperated with them fully and to the best of my ability. I am also cooperating with the House Energy and Commerce subcommittee.”
The next day MSO shares rallied strongly, jumping from $14.40 to $16.45.
I
n many ways, the intense press coverage and public mention of Stewart’s involvement came as a relief to Faneuil. He didn’t feel so alone. It wasn’t just him against Peter and Martha. This thing was much bigger. Even Congress had gotten interested. Though no grand jury subpoena had materialized, and he’d stopped expecting one, Faneuil talked to his friends about what to do next. He asked his father for suggestions about a new lawyer. He’d lost all confidence in Jeremiah Gutman.
Soon after the first articles reporting Stewart’s involvement, Faneuil picked up the phone and called Mark Powers, a lawyer suggested by a friend of his father’s, who in turn sent him to Marvin Pickholz, a criminal lawyer.
“You know the story that’s been all over the news, Sam Waksal and Martha Stewart and trading in ImClone?” Faneuil asked Pickholz. “Well, I’m the broker’s assistant. I did the trade.”
“Really?” Pickholz seemed surprised but also pleased. A high-profile case had just walked in the door. Faneuil told Pickholz the entire story, including the pressure he felt from Bacanovic, and his incomplete and misleading testimony. Pickholz said he needed to ponder the situation, and suggested Faneuil continue to lie low for a few days.
Soon after, however, with press coverage of Stewart intensifying, Pickholz asked him to come in again. This time Powers joined him. “This is heating up,” Pickholz observed. “We’ve got to act now, and you have to come forward.”
Faneuil asked how that would work. “We’re going to figure that out,” Pickholz said. “Give us a few days.”
The next day Faneuil answered the phone at his desk. It was Rick Weinberg, the Merrill Lynch lawyer who’d questioned him earlier. “How’s it going?” Weinberg asked. “We have a few more questions we’d like to go over with you.”
What a coincidence, Faneuil thought. Or was it? Had Pickholz said something? Faneuil said he had new lawyers, and would have to consult them first. He immediately called Pickholz. “Let’s see what he has to ask, where he’s going with this,” Pickholz suggested.
“But what if he asks about Martha?”
“We’ll cross that bridge when we come to it.” Pickholz said he’d be present, and would interrupt if necessary.
The next morning Pickholz came to the Merrill office. Broker’s assistants like Faneuil rarely had visitors on the floor, and Faneuil felt everyone was staring as Pickholz, wearing bright suspenders for the occasion, walked in and proceeded to make himself at home in Bacanovic’s office. Bacanovic was away, so Faneuil joined him and sat in Peter’s chair behind the desk. Still, it felt weird doing what he was about to do in Bacanovic’s own office, with the picture of Bacanovic from
Martha Stewart Living
so close by. “Let’s get Rick on the phone and see what he says,” Pickholz said.
“What if he asks about Martha?”
“Tell the truth,” Pickholz advised. “If he asks, ‘Did you tell Martha?’ say yes. Then I’ll jump in.”
Faneuil reached for the phone, but his hand froze. Surely this was a big mistake. His name hadn’t surfaced, and now he’d be the center of a raging national controversy. Why him? It didn’t seem fair. “Wait,” he said. “Tell me again. Why am I doing this?”
Pickholz’s voice rose. “Because if you don’t, you’re going to end up in an orange jumpsuit.”
Faneuil was stunned. He’d never really considered the possibility of prison. He quickly dialed Weinberg’s number using the speakerphone so Pickholz could participate.
There were barely any pleasantries before Weinberg asked, “Tell me what you said to Martha that day.”
Faneuil was amazed at the speed with which the subject had come up. He looked at Pickholz, who nodded encouragement. This was it.
“She called”–Faneuil took a deep breath–“and she asked about Sam.”
“What?!” Weinberg sounded incredulous.
Faneuil was silent.
“That’s not what you said before! That’s not in your testimony!” Weinberg sounded agitated and accusatory.
Pickholz stepped in. “Rick, my client has more to say. But he’s not going to say it now. Let’s work something out.”
Pickholz motioned for Faneuil to leave the room. Why couldn’t he stay and listen? He didn’t know, but he did as he was told. Pickholz stayed on the phone with Weinberg for about twenty minutes as Faneuil watched through the glass wall of Bacanovic’s office. When they finished, Pickholz told him he’d be meeting with the Merrill lawyers the next day, and Faneuil should tell them the whole story.
Faneuil was confused. “Aren’t we going to the government first?”
Pickholz patted him on the shoulder. “You’ve got to trust us on this. You won’t lose any advantage with the government. Merrill has promised that they’ll hold off and won’t say anything until you speak with the government.” In return, Pickholz thought he might still be able to salvage a job for Faneuil at Merrill Lynch, though he realized it would be a long shot.
The next day, June 21, Faneuil and his lawyers gathered in a conference room at Pickholz’s office, where Marcus and Weinberg from Merrill Lynch joined them. Faneuil was nervous, but he narrated the full story of his dealings with Stewart and Bacanovic on December 26. It didn’t take him very long to correct his earlier statements. He filled in the crucial details he’d omitted before: that Stewart had called and demanded to know what was happening with Sam, and that Faneuil told her Waksal was selling all his shares. Everything else was what he’d already told them. But those two facts changed everything. They showed that Stewart already knew something significant about Waksal, and that Faneuil had conveyed confidential information about Waksal’s trading. Marcus and Weinberg were scribbling furiously as he spoke, but didn’t show any reaction. Under questioning, Faneuil said he was never aware of any agreement to sell Stewart’s shares if the price hit $60, nor did Stewart or Bacanovic mention any such agreement that day, which undermined the linchpin of Bacanovic’s and Stewart’s explanation for the trade. Faneuil said he’d withheld the full account of what happened because he felt “pressured” by Bacanovic.
When Faneuil was finished, Pickholz asked him to step outside. Powers accompanied him into the hallway. “I don’t know what’s going to happen,” Faneuil told his lawyer, “but I don’t want to see Peter again. I can’t see him.” He was frightened and didn’t feel safe.
“Don’t worry, it will be fine,” Powers assured him.
When they returned to the conference room, Marcus said, “Don’t go back to the office. We’re not firing you; we’ll pay you. But we don’t want you going back to the office just yet.” Faneuil had no desire to go back to the office; he was already thinking about other job possibilities. If nothing else, this experience had already convinced him that he’d made a grave mistake taking a job on Wall Street.
After the Merrill lawyers left, Faneuil felt drained, but also relieved. He’d told the truth at last to people in authority, and a weight was lifted from his shoulders. “Keep your head down and try to relax,” Pickholz urged. “Don’t worry about work. Maybe you should go to a movie.”
Faneuil had nothing better to do. He went to a showing of
The Ring
, a horror film. The next day he noticed there was an urgent message on his cell phone from his father: CNBC was reporting that Faneuil and Bacanovic had been suspended by Merrill Lynch.
His life as he’d known it was over.
O
n June 25 Martha Stewart appeared for her regular cooking segment on the CBS
Early Show
. CBS News officials warned her before she went on the air that the network couldn’t ignore the mounting controversy over her stock trade. Still, she was determined to proceed. As she plunged a sharp knife into a head of cabbage, host Jane Clayson rather awkwardly changed the subject to the ImClone investigation. “I have nothing to say on the matter,” Stewart retorted. “I’m really not at liberty to say. And, as I said, I think this will all be resolved in the very near future and I will be exonerated–”
“I know that . . .” Clayson tried to interrupt, but Stewart kept talking.
“–of any ridiculousness. And I want to focus on my salad because that’s why we’re here.”
It was Stewart’s last appearance on
The Early Show
.
The next morning, Faneuil arrived at St. Andrew’s Plaza with his two lawyers. He wore his best suit and a tie. He was nervous. His lawyers had made clear that his future depended on this performance. He would finally be telling the truth to the people who really mattered–the prosecutors. He didn’t expect them to treat him as any kind of hero for coming forward–he didn’t even think of himself in those terms–but he did think they’d understand what he’d been through.
His lawyers hadn’t told him much about what to expect. All they’d stressed was that he couldn’t just walk in and say he’d lied. Pickholz had told him, “They really didn’t press you on Martha. You really didn’t answer them untruthfully. Tell them what you remember, but don’t say you lied.”
Wasn’t this just semantics? Wasn’t the whole point of this to be honest? Faneuil wasn’t sure, but he agreed to follow his lawyers’ advice. When they arrived, Faneuil signed a written cooperation agreement providing that anything he disclosed would not be used against him in any subsequent prosecution, a form of partial immunity.
When they came into Steve Peikin’s large office, Faneuil was confronted by a crowd gathered for the occasion: Peikin, two or three FBI agents, and several others Faneuil had never seen before. Schachter was in a trial, so Peikin explained the terms of the cooperation agreement and asked if he understood. Faneuil nodded. Then he started talking. He felt slightly sick, his stomach in knots. When he got to Stewart’s call, he said that she’d asked him about Waksal–“what was going on with Sam”–a departure from his earlier statements.
“But we asked you about that,” Peikin interrupted.
“I don’t know, there were so few questions about Martha,” Faneuil said, evading the question. He was trying to follow his lawyers’ advice. “There was so little time; I never really got a chance to finish . . . Nobody really asked. All I remember is I said she asked for a quote, and I gave it to her, and I sold her stock.”
Peikin leaped to his feet. “You lied!” he shouted. “If you think you’re going to sit here and try to tell us this was just two ships passing in the night, or some such bullshit, and we were foolish enough not to ask the right question, then you have another think coming! You’re a liar. You’ll never get away with this.”
“Okay, hold on . . .” Pickholz tried to interject.
“No!” Peikin yelled. “We’ve got your notes from Merrill Lynch.”
Everyone started talking at once. His lawyers told Faneuil to leave the room. FBI agent Catherine Farmer followed him outside. He got a soda from the machine in the hallway. He could hear everyone shouting and yelling in the conference room. He didn’t know what was going on, but obviously it was a disaster. He started to cry.
Finally his lawyers told him to return. The government lawyers had agreed that for now, they would put aside the issue of whether Faneuil had lied or misled the government in his prior statements or would accept responsibility for that. Faneuil told his story in detail and answered all their questions.