When they got to the courthouse, Faneuil and the agents entered through a side door. A federal marshal met him and, after patting him down, started asking questions that seemed curiously personal: Who were his closest friends? Where did he hang out? Did he go to bars? Which ones? As Faneuil rattled off the names of various bars, he realized he’d been drinking far more than usual. He felt embarrassed. Farmer explained that the marshals needed the information in case he fled, though she assured him they didn’t think of him as a flight risk. It was just another formality. Then they led him into a nearby jail cell. Faneuil had never realized there were cells right in the courthouse. Everything in it was painted white. There was no furniture other than a small bench protruding from the wall. He sat on it. The door slid shut. “Don’t worry, we’re not going to lock it,” Farmer said.
Time passed. Faneuil felt disconnected from his body. How had he ended up here? Finally the marshal came for him. He removed the handcuffs. Walking into the courtroom was like passing through the looking glass. Everything about it was much nicer, brighter, more normal. He joined his lawyers at a table. “If you need to speak we’ll tell you,” Pickholz warned him. “Do not say anything else.”
The proceedings began. Faneuil’s mind again drifted. He felt like he was starring in an episode of the TV drama
L
.A.
Law
. Suddenly there was silence. His lawyers were nodding encouragement. He stood and said, “Guilty.”
“He’s a little nervous, Your Honor,” Pickholz said. “Is it all right if he reads from a prepared statement?”
Faneuil began, trying to keep his voice steady. “I did not truthfully reveal everything I knew concerning the actions of my immediate supervisor . . . and the true reason for the ‘tippee’s’ sale of ImClone stock,” he said, without identifying either Bacanovic or Stewart by name. He said he’d accepted a free dinner for two, a week’s extra vacation, and received a raise in return for remaining silent. It was brief, over in minutes. He would be sentenced at a later date. For now, he was free to go.
Faneuil’s lawyers led him through the courtroom to the main door. “I thought we were going out the way I came in,” he said. “No, we’re going out this way,” Pickholz said. “There will be a sea of people, more reporters than you’ve ever seen.”
“For me?” Doug asked, incredulous.
“No, of course not. Because the main suspect is Martha Stewart. We’ll make a quick statement and then go home.”
When they stepped outside, they were at the top of a broad flight of stairs leading to the sidewalk. Faneuil noticed five or six reporters off to the right. Maybe it wouldn’t be so bad. But then he saw them gesturing and calling, “He’s here.” Suddenly a horde of people rounded the corner and started surging toward him and his lawyers. Some carried heavy camera equipment. He saw several trip; the crowd kept surging forward. Flashbulbs were popping. The front rank got within two feet of him and would have come closer if his lawyers hadn’t held out their arms and stopped them. The reporters yelled questions and tried to get his attention. “Doug,” “Doug,” he heard everywhere, as if he was on a first-name basis with any of these people. “What are you, a pussy?” someone yelled. “Aren’t you going to stick up for yourself?”
“I’m very sorry, but under the circumstances I can’t say anything,” Faneuil said, over and over.
“Would that goddamned kid stop being so polite?” a reporter griped.
“Keep your head high,” Pickholz whispered to Faneuil.
There were hundreds of reporters–more, the
New York Post
reported the next day, than for any other proceeding except the trial of mob boss John Gotti.
Faneuil and his lawyers moved slowly forward, pushing back the crowd. The flashbulbs kept popping. Finally they reached a podium that had been set up on the steps. Each of his lawyers read a prepared statement. They stressed that Faneuil had come forward to tell the truth of his own volition, that he was trying to do the right thing. Faneuil stood by, wondering what to do with his hands, which were clasped behind his back.
“Is Martha Stewart the ‘tippee’?” someone called out.
Pickholz said he couldn’t answer that, but added, “If you guys read this information and can’t fill in the blanks, then you’re in serious trouble.”
Finally it was over, and they reached the waiting Town Car. The lawyers dropped Faneuil off in the Village, then continued up Sixth Avenue. Faneuil walked to Haskell’s apartment–his own was staked out by photographers–and changed out of his suit. He was walking to meet Haskell for lunch when his cell phone rang.
“Douglas Faneuil, this is Jim Porz of Merrill Lynch. I have Judy Monaghan with me.”
“Hi, Doug. It’s Judy. How are you?”
What a ridiculous question, Faneuil thought. How did she think he was?
“We understand that you pleaded guilty today to a federal crime,” Porz said.
“Yeah, that’s right.”
“You’re fired. Doug, you broke the rules and disappointed everyone here. You shared information about a client’s activity with another client. You know that’s forbidden. You’ve proven yourself unworthy of Merrill Lynch,” Porz continued, his tone grave and, Faneuil thought, pompous. “And so we have no choice.”
The press release had already been written. Bacanovic, too, was fired, for allegedly failing to cooperate with a federal investigation–not for lying to Merrill Lynch. The release stressed that Merrill Lynch itself was cooperating fully with the ongoing investigation.
Now that he’d been fired, Merrill Lynch stopped paying Faneuil’s outstanding legal bills. They were now approaching six figures, and Faneuil didn’t have the money. But Merrill Lynch continued to pay Bacanovic’s legal fees. When Faneuil’s lawyers threatened to reveal this to the press, Merrill Lynch relented and resumed paying his bills.
Faneuil’s picture was everywhere, on television, in the tabloids. An ex-boyfriend sold an old photo of Faneuil flexing his biceps to the
New York Post
, which emblazoned it on the cover, touting its “photo exclusive” of the “preening broker.” Faneuil got calls from people he hadn’t heard from in years, expressing varying degrees of sympathy, curiosity, and titillation. Journalist Christopher Mason, a self-described “close friend” of Bacanovic’s, wrote in
New York
magazine that Faneuil was a “jittery Judas” who had “shifted the blame to Bacanovic” by tattling to Merrill Lynch officials.
Meanwhile, Mason wrote, high society friends were rallying to Bacanovic’s side. “Some threw him quiet dinners and lunches. The list of hosts included Nan and Tommy Kempner, Rufus and Sally Albemarle, and Louise Grunwald, who says the support for Peter has been unbelievable.”
F
aneuil stayed away from his apartment for six months. It was under constant surveillance by photographers. While living at Haskell’s, he sent hundreds of letters looking for work. He was on the brink of being hired several times, until he explained he’d pleaded guilty and was a cooperating witness in the Martha Stewart investigation.
Eventually he landed a job at a Chelsea art gallery. It was temporary–the gallery was slated to close in a year–but having a job again made all the difference to his self-esteem. He steadily got more responsibilities and felt appreciated. Customers didn’t recognize him or, if they did, said nothing.
As a cooperating witness, Faneuil was always on call if government lawyers needed him. He made many trips to the U.S. Attorney’s office for meetings with Schachter, Seymour, and other lawyers on the Stewart investigation. The meetings began to blur in his mind. Sometimes he’d be there several days in a row; other times, a week or more would go by. He estimated he had fifteen to twenty meetings. He was asked to repeat every aspect of his story in painstaking detail. The prosecutors remained determined to get him to admit that he knew he did something wrong when he told Stewart about Waksal’s attempt to sell his shares. This had been the sticking point before, and Faneuil still refused. Having been told to do so by Bacanovic, Faneuil had assumed it was okay. Given Merrill Lynch’s policy on confidentiality, should he have known better? Perhaps, but the fact was that he hadn’t known.
At first the government lawyers seemed to accept his account, but they kept returning to it. Faneuil did some research on the law of insider trading and could see why they did. For Stewart to be guilty of insider trading, she had to know that Faneuil was breaching a duty of confidentiality. If Faneuil himself didn’t realize that, how could she be expected to? As Faneuil stood his ground, the lawyers were more insistent. “Are you sure? I mean, honestly, Doug, you say that’s what you remember, but does that make any sense?” Finally, Seymour confronted him. “Doug, we’ve talked to all your friends, and they say you told them you did something wrong.”
Seymour was skeptical that Faneuil didn’t know he was doing anything wrong. It seemed obvious. Faneuil was smart enough to know better. She worried that if he insisted on his innocence, he’d be eviscerated on cross-examination. She and her colleagues pressed him hard on the issue, but he wouldn’t budge.
The prosecutors also had problems with Faneuil’s version of the $60 story. In Faneuil’s account, Bacanovic had first told him the ImClone sale was part of a tax-loss-selling strategy, and only after Heidi DeLuca called him did Bacanovic shift abruptly to the $60 story. To Schachter this made no sense, since Bacanovic had testified to the $60 story in his first interview with the SEC, which was before DeLuca’s call to Faneuil. Faneuil’s version indicated Bacanovic was telling one story to Faneuil, and an entirely different one to others. Bacanovic may not have had a keen criminal mind, but surely he wouldn’t have been that inconsistent. Under repeated questioning, Faneuil began to doubt his memory, conceding that maybe he’d gotten confused.
But by far the most troublesome of Faneuil’s recollections was Marcus’s assurance that Stewart and Bacanovic had nothing to fear if Merrill Lynch delivered the Waksals “on a silver platter.” Faneuil was not a party to any such conversation. But his lawyer at the time, Jeremiah Gutman, was, and it was this assertion that had caused him to recommend that Faneuil “lie low” rather than come forward with the truth. From the government’s point of view, this was not only far-fetched, but it put the government in a bad light, seeming to bargain with Merrill Lynch over the fate of prominent potential defendants. And it seemed self-serving, a ready excuse for Faneuil’s failure to come forward sooner. Faneuil’s own lawyers had made clear that they had trouble believing the story. They worried that Gutman was unpredictable, and might say anything on the stand. From a practical standpoint, if Gutman testified that no such conversation had taken place, Faneuil’s credibility would be destroyed. But Faneuil held his ground. On this his memory was perfectly clear. After all he’d been through, he wasn’t going to lie now.
O
n October 15, just weeks after Faneuil entered his plea, Sam Waksal pleaded guilty to six felonies: perjury, obstruction of justice, securities fraud (two counts), bank fraud, and conspiracy. The pleas weren’t the result of any bargaining with the government, as is often the case. The evidence was so overwhelming that Schachter had refused to enter into any plea negotiations.
Waksal finally admitted that he knew the FDA was going to reject the Erbitux application and as a result told both his father and daughter to sell their ImClone shares. In an apparent effort to spare them insider trading charges, he insisted he never told them why they should sell. Still, he contradicted their sworn testimony that neither had spoken to him before selling. His admission along with the phone records all but proved that the two had committed perjury.
Indeed, Aliza Waksal, now with a new lawyer, had come forward and corrected her earlier testimony, conceding that her father had told her to sell her shares and had asked her to lie on his behalf, which she did. As one government lawyer put it, “What father would do that? She’s twenty-four years old, a student, and he puts her in criminal jeopardy. When a father asks his daughter to lie for him, this is despicable.”
Ultimately prosecutors exercised their discretion and decided not to bring criminal charges against either Aliza or Waksal’s eighty-year-old father, who was a concentration camp survivor. Both were as guilty of false statements as Faneuil, arguably more so. Yet neither was needed as a witness, and thus had no further strategic importance to the government.
Besides the insider trading charges, Waksal also admitted defrauding Bank of America and forging the name of ImClone’s general counsel on a letter to the bank. Waksal had shown utter indifference to the law and a willingness to drag his own family members into the conspiracy.
“I have made terrible mistakes,” Waksal said outside the courthouse. “I deeply regret what happened. I was wrong.”
Waksal was sentenced to seven years, three months in prison, and paid fines and restitution of $3 million. The night before he reported to a federal prison in Pennsylvania, he threw a party in his SoHo loft and handed out magnums of Château Lafite Rothschild from his cellar,
New York
magazine reported. Martha Stewart didn’t attend, but phoned to offer her best wishes.
Waksal’s professed remorse didn’t extend to naming anyone else he tipped or cooperating with the government. Schachter told the court that there was “compelling evidence that Dr. Waksal may have tipped others,” evidently referring to Waksal’s friends Sabina Ben-Yehuda and Zvi Fuks. Ben-Yehuda was dating Fuks, who was a member of ImClone’s scientific advisory board and the head of the department of radiation oncology at Memorial Sloan-Kettering Cancer Center. Ben-Yehuda and Fuks sold all their ImClone shares just before the FDA announcement; in Fuks’s case, worth $5.37 million. (They later paid fines of $2.77 million to settle insider trading charges filed by the SEC without admitting or denying guilt.)