Later, as the investigation intensified, “Bacanovic had worked out a better story than the relatively silly tax-loss-selling story, and this was the new story that Peter Bacanovic hammered into Doug Faneuil”–the $60 story.
Schachter also tackled another puzzling switch by Bacanovic: his initial testimony that he handled the ImClone trade for Stewart and later, when questioned under oath, that Faneuil handled the trade. “Why the switch?”
Because Judy Monaghan and Dave Marcus at Merrill Lynch mentioned that the SEC was getting phone records. “Peter Bacanovic knows that phone records would prove he was not the person who spoke to Martha Stewart. So that story falls by the wayside.” Yet another mystery is why Bacanovic never conveyed the new story to Stewart. In her interview on April 10, Stewart alone was still telling the thoroughly discredited story that she placed the ImClone trade through Bacanovic, even when pressed on the statement by the SEC’s Helene Glotzer.
That wasn’t the only discrepancy. Stewart had said Bacanovic told her the SEC was asking Merrill Lynch questions about ImClone trading. But Bacanovic testified that he never mentioned the SEC to Stewart in connection with any investigation. “That, ladies and gentlemen, is not worthy of your belief. They, again, just did not get their stories straight about what they discussed together about the investigation.”
In fact, the evidence strongly suggested that Stewart and Bacanovic not only discussed the investigation but hatched the $60 cover story. The two had breakfast at Le Gamin, alone, on January 19. The following week, when Faneuil returned from a vacation, Bacanovic called him in to report that “everyone is telling the same story. This was a $60 stop-loss order.” And yet Bacanovic had also denied discussing the investigation with Faneuil.
Schachter thoroughly demolished the $60 story. Some of the most persuasive evidence was that at 10:04 a.m., the precise time when Bacanovic left the message for Stewart that ImClone was “trading downward,” ImClone was
not
below $60–it was trading at $61.52, where it had already been trading for a full week. Indeed, it was lower than that on December 19, before Bacanovic’s vacation, and yet that trading had not prompted any call to Stewart.
As for DeLuca’s testimony, it “was not true. . . . Heidi DeLuca was at best confused.” Her notes were from October 24, and related to the pension fund’s sale of ImClone for $61 a share on October 25 and 26–not Stewart’s sale on December 27. Moreover, Schachter replayed the recording of Bacanovic’s testimony in which he said he had never discussed Stewart’s personal ImClone trading with DeLuca. In this instance, Bacanovic was telling the truth.
In sum, “Defendants are guilty for lying about what they did on December twenty-seventh. Defendants are guilty of lying about the reasons for Martha Stewart’s sale, for lying about the message that Peter Bacanovic left, and that Martha Stewart received, for lying about who Martha Stewart spoke with and what they discussed on December the twenty-seventh. They are guilty of obstruction for lying about the phony cover story and for lying about speaking about the investigation of Martha Stewart’s ImClone sale, for lying about talking to Doug Faneuil about the investigation, and by pressuring Doug Faneuil to lie.”
A
t this juncture, the defense team had an unenviable task, especially with neither Stewart nor Bacanovic taking the stand to present a coherent, plausible, and innocent alternative. They were stuck with Bacanovic’s and Stewart’s prior testimony, which was riddled with inconsistencies. While they could and did argue that Glotzer and Farmer had misheard or made mistakes in their note taking, Bacanovic’s sworn testimony had been recorded. Their testimony had been inconsistent on such fundamental facts as whether Stewart did or did not speak to Faneuil on December 27.
They had to demolish Faneuil’s credibility about almost everything he’d said. More important, they had to cast doubt on those parts of his testimony that had been corroborated by records as well as by Pasternak’s testimony that Stewart knew the Waksals had sold their shares.
As was the case throughout the trial, Bacanovic’s team went first, in a closing argument presented by Strassberg. His argument essentially boiled down to an argument that the government’s case “makes no sense” and thus, it couldn’t have happened. “It makes no sense that Peter Bacanovic would have asked his brand-new assistant to pass confidential information about Sam Waksal along to Martha Stewart. It makes no sense. It makes no sense that Peter Bacanovic, after having been told that Mr. Faneuil had gone down, spoke to the SEC and told them, I, Doug Faneuil, spoke with Martha Stewart on the twenty-seventh, that then, three or four days later, Mr. Bacanovic would have gone down and said, no, forget what you just heard, I, Peter Bacanovic spoke to Martha Stewart on the twenty-seventh when I was on vacation. It makes no sense because it didn’t happen. It makes no sense, ladies and gentlemen, that Mr. Bacanovic, who had built his career, his reputation, his lifeblood, really, on his integrity and his ability to have people trust him, would jeopardize it all by doing something so untrustworthy as sharing client confidences between one client and another. It makes no sense. It didn’t happen.
“We are going to talk quite a bit about Mr. Faneuil, but where do we start with Mr. Faneuil? . . . We already know that his inferences are from a person who has an extreme motivation to shade the truth when he speaks to you. . . . We know he is a convincing liar. Remember, he sat before the SEC, sat before Merrill Lynch, talked to them and lied to them, and no one suspected a thing. Certainly not at first. No one suspected a thing. So we know he is able to look people right in the face and lie to them and have them believe him. . . . We all saw him on the witness stand. And what did we see? He answered the questions like a pro. Do you remember that? He was determined to say what he wanted to say, regardless of what the question was. He was even correcting the judge at one point. . . . And the answer often ended with him blaming Peter Bacanovic for something or other.”
For Strassberg to say that he would be talking “quite a bit” about Faneuil proved an understatement. He went on for hours, even attacking his credibility for maintaining he had a 3.5 grade point average–when it was actually 3.44. Even the judge admonished Strassberg that he had reached the point of “diminishing returns.” Still, despite the extensive questioning while Faneuil was on the stand, there was no mention of any drug use.
Spending so much time on Faneuil left Strassberg little time to rebut the actual charges against Bacanovic. All but conceding the gaffe over Heidi DeLuca’s work sheet and notes, he did his best to rehabilitate her–“The date doesn’t really matter” and “It doesn’t make any sense that it would have happened the last week in October. . . . Her testimony, no matter when the date is of that note, undermines their whole case . . . it is not good enough for them to just raise questions about the date on a note. . . . It doesn’t dispel substantial doubts, a lot of doubts. Certainly it doesn’t dispel all reasonable doubt.”
Although the argument had consumed many hours, that was pretty much it: Faneuil could not be believed or trusted; witnesses had misheard or misunderstood when Bacanovic initially told the SEC he spoke to Stewart; DeLuca’s testimony proved or at least raised doubts about whether they did have a $60 stop-loss agreement. It didn’t make sense that Bacanovic would lie to protect his most important client.
“In many ways he [Bacanovic] has been the victim,” Strassberg concluded. “He has been caught in the crossfire here between the government’s attempt to make a case against Ms. Stewart, caught in the crossfire about what happened on a phone conversation that he wasn’t part of between Mr. Faneuil and Ms. Stewart, caught in the crossfire but not willing to cut a deal and take himself out by falsely implicating Ms. Stewart. And make no mistake about it, ladies and gentlemen, this has been a nightmare for him. He has lost his reputation, he lost his career, he lost everything that he had built up over almost nine years at Merrill Lynch and now it’s even worse because the nightmare continues. His life, his very liberty, is in your hands.”
Morvillo is legendary in the courtroom, but in many ways he had an even more difficult task, since Stewart’s allegedly false statements were less artful than Bacanovic’s, who had at least had the common sense to change his story about speaking directly to Stewart on the twenty-seventh. Morvillo, too, had to rely heavily on a variation of the “it makes no sense theory” put forward by Strassberg.
“If two very bright, successful people like Peter Bacanovic and Martha Stewart . . . We know that they are smart people. We know that they are successful people. We know that they pay attention to detail on their everyday lives. We know they have risen up the ladder from a job point of view, from an economic point of view by dint of hard work and by dint of doing things the right way. If those two people want to sit down and rig a story, wouldn’t they make a story consistent on at least the major aspects of it? If you and I were conspiring to fool the government, to fool the SEC when we sat down on January 16, wouldn’t we get our stories straight? Well, of course we would. Let’s see whether that’s what Peter Bacanovic and Martha Stewart did. Look at the gaping inconsistencies in the recollections they had when they testified . . . they fall down on the very first important element of this story, when did it [the $60 conversation] take place?”
Stewart had said the $60 conversation took place in October or November; Bacanovic recalled it on December 20 or 21. “Guess what else they forget to tell each other as they sit there rigging a story. They forget to tell each other who took the order on December 27 . . . how was it that something as elemental as who took the order on December 27, the very next date here, is not something that meshes?”
And then Bacanovic changed his testimony, saying Faneuil took the order. “Did he tell Martha Stewart that he changed his story? Did he tell his conspirator that he changed his story? Because you know on April 10 she is re-interviewed. And on April 10 she still says it’s Peter Bacanovic that she talked to. So what kind of conspiracy is this? It’s a conspiracy of dunces.”
Morvillo took a somewhat softer line with Faneuil, though he covered much of the same ground impugning his credibility. “Doug Faneuil carries more baggage with him than a cargo handler loading a cruise ship for an around-the-world voyage,” he said at one point. But Morvillo also faced the more daunting task of discrediting Mariana Pasternak and Ann Armstrong. Stewart had testified point-blank that she wasn’t told the Waksals were selling, and yet she’d told Pasternak she knew they were.
Remarkably, Morvillo didn’t dispute Pasternak’s recollection, but claimed that Stewart had simply forgotten when she said she wasn’t told. “Nobody is disputing whether or not Ms. Stewart was told that the Waksals were selling on December 27. What we are disputing is that it made a difference to her. What we are disputing is that it had so much business significance to her that she would have retained it in her mind and on April 10, when she is finally asked the question about it, directly, that she would have remembered. Four months and some two thousand phone calls later, they finally get around to asking her the question. They ask it in a misleading fashion. She tells them what her recollection is, and whammo, she is indicted for it.”
As for Armstrong, “Annie Armstrong and the alteration . . . you understand my position that it is much ado about nothing.
“When Martha Stewart went to the computer on the 30th of January and she saw the message, ImClone is going to start to trade down, she didn’t remember that as the message that she got about it. And so momentarily she was startled and she changed it to ‘re: ImClone.’ Re: ImClone is significant because there was nothing in that message that was inconsistent with the fact that they had had a $60 conversation. If she had changed that to re Kmart, to re IBM, to re MSO, then it seems to me somebody could argue she was trying to mislead somebody. But she changed it to re: ImClone . . . even if she was attempting to alter the message in accordance with her recollection . . . she wasn’t trying to do anything deceptive. . . . She immediately changed it or ordered that it be changed back so it could read correctly. She never asked Annie to conceal it. She never asked Annie to forget it. She never asked Annie to lie. She never asked Annie to mislead anyone. She never asked Annie to destroy it. She just simply made that brief, quick decision because she was startled about the substance of the message and wanted to make it reflect a little bit more accurately [Stewart’s recollection].”
But how could Stewart have been unable to recall the message from Bacanovic just days after this incident? Morvillo made the same argument as the Wachtell lawyers, that Glotzer and Farmer were wrong about Stewart’s interview: that Stewart wasn’t asked “whether” there was a written record of Bacanovic’s call, but “when” he called, and that’s what Stewart couldn’t remember–the precise time of his call.
Morvillo also tried to explain away Stewart’s statement that she spoke to Bacanovic and placed the ImClone trade through him by arguing that she had mistaken Faneuil’s voice for Bacanovic’s. “If Martha Stewart . . . had understood that she was talking to Doug Faneuil on December 27, the first thing she would have said was: ‘Where’s Peter? Please get Peter for me on the telephone. I want to talk to Peter about ImClone. I don’t want to talk to you.’ ” This, to put it mildly, stretched credulity, since several witnesses had attested to the fact that Faneuil’s and Bacanovic’s voices sound nothing alike. It was also nothing but speculation by Morvillo.