Tangled Webs (13 page)

Authors: James B. Stewart

Tags: #History, #United States, #General, #Law, #Ethics & Professional Responsibility

T
he prosecutors were furious over what they saw as Faneuil’s continuing evasions. Still, Faneuil had come forward. He wasn’t going to retreat now. The Stewart-Bacanovic story was crumbling, and not just because of new information from Faneuil.

Lawyers involved say that Faneuil’s change of heart came as a “bombshell” to Savarese, Pedowitz, and the other Wachtell lawyers involved in the case. When they learned the news, their first question was, “Who is Faneuil?” With the possibility of a trial suddenly more likely, and considering that Wachtell lawyers themselves might be called as witnesses, they deemed it prudent to reach out to Robert Morvillo. (Under the disciplinary codes, lawyers may generally not act as advocates at a trial in which they are likely to be called as witnesses.) Morvillo had been head of the criminal division in the U.S. Attorney’s office and a law review editor at Columbia; with his portly figure and down-to-earth manner, he looked like he’d stepped out of a television law drama. He was especially effective with juries.

Now that Faneuil had changed his story and agreed to cooperate, and as the Stewart publicity mounted, Karen Seymour, the head of the criminal division at the U.S. Attorney’s office, assumed a more active role in the case. Seymour had recently returned to the office at U.S. Attorney Jim Comey’s request to head the criminal division, a post she considered her “dream job.” Seymour had worked at the office before with both Comey and Patrick Fitzgerald, now the U.S. Attorney in Chicago; she had enormous respect for Comey’s dedication and integrity. She left a lucrative partnership at Sullivan & Cromwell to take the job. When she’d arrived, the Waksal investigation was in progress. It had seemed straightforward, a brazen example of insider trading and perjury at the highest level of ImClone. She’d watched as the Stewart dimension, at first barely a footnote, had inflated into a scandal involving another publicly traded company and was now swallowing the entire case. With Faneuil’s revelations, Stewart’s story no longer held together. Seymour felt Stewart needed to be questioned again, this time, like Bacanovic, under oath.

Schachter contacted Stewart’s new lawyer, Morvillo. This time, he flatly refused to make Stewart available for more questioning. If subpoenaed, he said, she would invoke the Fifth Amendment and refuse to testify.

This was Stewart’s right, of course, but the prosecutors were free to draw their own conclusions.

With Stewart and Bacanovic balking, or worse, providing false testimony, the government lawyers turned to other potential witnesses. The SEC’s Helene Glotzer arranged to question Ann Armstrong, still working as Stewart’s assistant. Like other MSO employees swept into the investigation, Armstrong was told to hire her own lawyer at company expense, and was strongly encouraged to choose someone from Wachtell Lipton or Morvillo’s firm, the same firms representing Stewart. But Armstrong didn’t like the idea. There were too many potential conflicts, and she felt Stewart’s interests would inevitably take precedence over hers. Armstrong was friendly with Stewart’s personal assistant in Connecticut, whose husband was a white-collar defense lawyer. He recommended Susan Brune, a lawyer in Manhattan.

Stewart never said anything about Armstrong’s decision, but the moment she hired a lawyer from outside the Stewart defense team, her attitude and demeanor changed. She was distant toward Armstrong.

Armstrong’s friendship with Cuti also waned. In one phone conversation, Cuti had dismissed Faneuil’s apparent decision to cooperate with prosecutors. “We’re going to get Doug Faneuil, make mincemeat of him, put him through the wringer,” he said, according to Armstrong.

“How dare you say that,” Armstrong replied. Like her, Faneuil was a bystander dragged into the affair by his boss. “I feel closer to Doug than anybody else,” she added, although the two had never met. (Cuti denies making such a comment about Faneuil.)

Finally, at a meeting in Morvillo’s office, matters reached the boiling point. Armstrong got so angry that she left the meeting and sat in the firm’s library to collect herself. Cuti followed her in, trying to make amends, but Susan Brune was upset when she found her client alone with one of the defense lawyers. Armstrong insisted that she was going to tell the truth, whatever the consequences for Stewart.

Glotzer began by asking about the phone calls on December 27, and Armstrong explained the sequence of events: the message from Bacanovic about ImClone “trading downward”; the subsequent call she had placed from Stewart to Faneuil. This, of course, contradicted Stewart’s testimony that she had placed the order with Bacanovic directly.

“Was it possible to mistake Faneuil’s and Bacanovic’s voices?” Glotzer wondered.

Absolutely not, Armstrong said. She wondered why Glotzer was even asking.

Armstrong narrated the entire story of the erased message, Stewart’s order to put it back, and Armstrong’s subsequent efforts to retrieve the original from the computer system, all of which had happened just days before Stewart’s testimony in which she claimed to have no memory of any phone message.

The government lawyers were startled. Stewart’s decision to destroy crucial evidence–and then resurrect it–didn’t seem to be, on its face, a smoking gun. And yet it spoke volumes about Stewart’s state of mind at the time–and even more powerfully, to her truthfulness when she was interviewed just days later. Stewart had asked to see the message log and then altered it right after talking with her defense lawyer. Its existence was inconsistent with her statement in her first interview that the message was to call her broker. It also conveyed information–possibly inside information. And the information rendered utterly incredible Stewart’s testimony that she “didn’t recall” if there was any written record of Bacanovic’s call–just days after she’d erased it.

And how could Stewart’s lawyers have said nothing when she gave such an answer, when they had just spent the weekend discussing the incident and trying to retrieve the message?

Stewart’s lawyers later pointed to the Steven Pearl memorandum in their files–which, contrary to FBI agent Farmer’s notes, said that Schachter had asked Stewart what
time
a message from Bacanovic had come in (not whether there was a written record of the message)–to maintain that Stewart had responded truthfully when she said that she didn’t remember. The lawyers didn’t know either, and said they’d check to see if there was a time on the message log.

Schachter later disputed this, saying his question, Stewart’s answer, and the lawyers’ response clearly related to the existence of such a message, although there may also have been a follow-up question about its timing. (Notes taken by FBI agent Farmer and the SEC lawyers supported Schachter’s recollection.)

In any event, the lawyers had finally produced the critical evidence. Armstrong had turned into a far more important witness than anyone had guessed. Glotzer quickly passed on the news to Schachter, who in turn conveyed it to Karen Seymour and Jim Comey. Other lawyers on the investigation called Armstrong, and she repeated the story. Finally they asked her to testify before the grand jury. They wanted this under oath, on the record. The prosecutors knew that Armstrong might come under intense pressure to change her story. Armstrong complied.

The government lawyers had also received test results from the work sheet containing the handwritten “ImClone @ $60” reference that Bacanovic had testified about, and that he was so sure was contemporaneous evidence supporting the story that he and Stewart had agreed to sell her ImClone shares if they reached $60. They’d sent the work sheet to the chief forensic scientist for the U.S. Secret Service, which specializes, among other things, in detecting counterfeit currency. They’d always felt the “@ $60” reference was curious, and the Secret Service had tested the ink. It turned out to be a unique sample; all other handwritten references on the work sheet were in a different ink. The results weren’t dispositive, but were certainly consistent with the possibility that Bacanovic had later altered the document to support his story, using the same color ink but a different pen from the one he’d used for the other entries. If so, it was a blatant attempt to obstruct justice.

The Justice Department lawyers had barely absorbed these developments when Schachter burst into Comey’s office one morning, Catherine Farmer beside him. He was pumping the air with his fist.

“What’s up?” Comey asked.

“Pasternak just told the truth!”

Pasternak, Stewart’s self-described best friend and companion on the trip to Las Ventanas, had been a reluctant witness, to put it mildly. But the prosecutors sensed she knew something. Stewart herself had acknowledged that she “might” have said something about her ImClone trade to Pasternak during the trip. Finally they had issued a grand jury subpoena requiring her to testify. To avoid having her take the Fifth Amendment and refuse to answer their questions, they gave her full immunity, on only one condition: that she tell the truth.

Even so, Schachter had low expectations. Sharkey, for example, the other companion on the trip, had insisted he knew nothing. (He later told other MSO employees that prosecutors “hadn’t asked the right questions.”) So Schachter and Farmer were ecstatic when Pasternak recalled the scene on the resort terrace, where Stewart had described Waksal’s attempt to sell his shares, culminating in her remark “Isn’t it nice to have brokers who tell you these things?”

As Pasternak put it in a subsequent memoir about her life and friendship with Stewart,
The Best of Friends
, “I decided to follow the rules because after careful consideration, as much as I loved Martha, I could not sacrifice myself in service to her devastating problems.”

No wonder Schachter was excited, since in its way this revelation was even more electrifying than Armstrong’s testimony. When Stewart and Pasternak were in Mexico, there was no way Stewart could have known that Waksal was trying to sell his shares unless someone told her–and with her seemingly offhand remark to Pasternak, Stewart had acknowledged that that someone was her broker. It was now obvious that this was the reason Stewart sold so precipitously–not that she had any agreement to sell if the stock fell below $60. Did the fact that the chief executive of ImClone was trying to sell his shares meet the legal definition of inside information? That remained to be determined. What was now obvious was that Stewart and Bacanovic thought it did–and had tried to cover up the real reason for the trade.

A
s the days passed after his visit to the U.S. Attorney’s office, Faneuil waited anxiously for news of his fate. He thought coming forward was going to solve his problems and calm his anxiety. So far it had had the opposite effect. One day he got a call from Pickholz, asking if he’d be willing to take a lie detector test. “People are having some problems with your story,” he said, specifically Faneuil’s claim that Marcus had assured Gutman that Faneuil, Bacanovic, and Stewart would be fine, since Merrill Lynch was delivering Waksal on a “silver platter,” and that Bacanovic had initially attributed Stewart’s ImClone sale to “tax-loss selling.” Pickholz sounded like even he found the account far-fetched.

Faneuil recoiled at the idea. He was telling the truth, but he knew polygraphs could be inaccurate, and given his emotional state, he thought there was a good possibility he’d fail. Still, he agreed. “I’ll do what I have to do,” he said. “I don’t know that I trust them.”

Afterward he called his father, who was incensed at the notion that even Faneuil’s lawyers seemed to be doubting him. Faneuil called Pickholz, indignant. “What the hell is going on?” Pickholz told him to relax, not to worry about it.

Several weeks later, Faneuil again met with Pickholz and Powers at Powers’s office. The bottom line, they said, was that the government wanted him to plead guilty to two felonies: making a false statement and obstruction of justice. Faneuil knew the government had been pushing for a felony plea, but he’d assumed this was just a tough negotiating tactic. “What about immunity? What about a misdemeanor?” he asked. Prosecutors often go along with a plea to a lesser offense if a witness is cooperating.

Immunity was “off the table,” Pickholz said. The government wouldn’t even discuss it. “The problem,” Pickholz explained, “is that we’ve tried, we’ve looked, but we can’t find a lesser crime for you to plead to.” It seemed ironic that Faneuil’s problem was that he hadn’t committed any other crimes.

“So what does that mean, pleading to a felony? How will it affect my life?”

“There’s a possible jail term,” Pickholz said. “And you’d lose your right to vote.”

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