Tangled Webs (4 page)

Read Tangled Webs Online

Authors: James B. Stewart

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

Faneuil felt uneasy. He assumed Bacanovic meant that he should tell Stewart about the Waksals’ attempts to sell their shares. But he had never discussed one client’s transactions with another. He’d only been working at a brokerage firm for six months, and he didn’t recall being told anything specifically, but wasn’t this possibly illegal insider trading?
“What can I say?” he asked Bacanovic. “Can I tell her about Sam? Am I allowed to?”
“Of course!” Bacanovic sounded irritated at his naiveté. “You must. You’ve got to. That’s the whole point!”
At 1:18 p.m. Faneuil got an e-mail from Bacanovic. “Has news come out yet? Let me know. Thanks. P.”
Faneuil replied, “Nothing yet. I’ll let you know. No call from Martha either.”
 
A
rmstrong, known to everyone in the office as Annie, was intelligent, efficient, organized, and reassuring. Many thought she was too well qualified to be Stewart’s assistant, while recognizing that she helped hold the office together. She was middle-aged, slender, with shoulder-length hair streaked with gray. She avoided the limelight surrounding Stewart, and the two didn’t socialize outside the office. Still, probably no one on the staff knew Martha–her strengths and weaknesses–better than Armstrong.
Armstrong worked at the magazine headquarters on West Forty-second Street, where Stewart usually spent Mondays and Wednesdays. On Tuesdays and Thursdays Stewart filmed her television show at her studio in Westport, Connecticut, near her home there. She had other assistants, but whenever Bacanovic felt he needed her, he called Armstrong.
When she answered the phone, just after 11:00 a.m. on the twenty-seventh, Armstrong recognized Bacanovic’s voice. “I need to speak to Martha.”
It had been a quiet morning, so close to Christmas and with Stewart out of the office. Armstrong told Bacanovic that Stewart was en route to a vacation in Mexico, traveling by private jet.
“Can I call her on the plane?” Bacanovic asked. “I need to speak to her about ImClone.”
“It’s not that easy,” Armstrong said. She’d tried on other occasions, and she had to reach the private jet company, which had to phone the pilots, who had to get a message to Stewart. It could take over an hour to get a reply. “She’s going to be touching down and I’m sure she’ll call the office for messages.”
“Tell her, when she calls, that I think ImClone is going to start trading downward,” he said. Armstrong carefully wrote the message in a blue notebook she kept at the ready for messages. Then she turned to her computer and typed the same message into Stewart’s phone log: “Peter Bacanovic thinks ImClone is going to start trading downward.”
“Ask her to call my office,” Bacanovic concluded, and then hung up.
Armstrong thought the message was “fishy.” She knew to a near certainty that Stewart would act on Bacanovic’s information, whatever it was. The stock market in general, and ImClone in particular, was a near obsession with Stewart, who had earlier worked as a stockbroker before quitting to launch her catering business. She had been furious with Bacanovic a few weeks earlier, after ImClone shares rose a few dollars shortly after she sold a large block, on Bacanovic’s recommendation. Armstrong’s father had been an active investor, and she knew a good deal about the market and its workings, and what kind of information drove stock prices. She wondered what Bacanovic knew.
Stewart had the peculiar fixation with money that is common to many self-made entrepreneurs, no matter how wealthy they’ve become. Born in 1941 in Nutley, New Jersey, to working-class Polish Catholic parents and an alcoholic father, she had worked as a housekeeper on Park Avenue to help pay for college at Barnard. One employee recalled that after a photo shoot for the magazine in North Carolina, Stewart insisted that all the food be wrapped and flown home with her. Her personal expenses were often billed to the company; after one half-day photo shoot in her Westport home, Turkey Hill, the company paid for nine days of housekeeping expenses. One year, the company paid Stewart $2 million in “rental fees” for the use of her various homes as sites for photo shoots, the
New York Times
reported. After the 1999 public offering of shares in Martha Stewart Living Omnimedia, Stewart was indisputably wealthy, with a fortune estimated at $1 billion by
Forbes
magazine in August 2000.
Little more than an hour after Bacanovic’s call, Stewart phoned from an airport in San Antonio, Texas, where the jet had stopped to refuel. Her companions on the flight and vacation–her close friend Mariana Pasternak and Kevin Sharkey, interior decorating editor at the magazine and a favorite decorator of Stewart’s–noticed that she grabbed a phone from a desk as soon as they arrived in the waiting area. Armstrong relayed several messages from magazine staff members as well as Bacanovic’s, which Armstrong read to her in its entirety. Stewart didn’t react. But after Armstrong patched her into her employees, she told Armstrong to call Bacanovic. “Merrill Lynch, Peter Bacanovic’s office,” Faneuil answered.
There was a slight pause as Armstrong got off the phone. “Hi, this is Martha,” Stewart said.
Given his prior experiences with her, Faneuil was nervous. All of their brief conversations–there had been three or four–had been unpleasant. Bacanovic didn’t want Faneuil to talk to Stewart if it could be avoided, and had given him strict instructions to get him ASAP when Stewart called. One time Faneuil put her on hold, and Bacanovic told him to pick up and make conversation while he gathered some information. Faneuil returned to Stewart’s line, but before he could say anything, Stewart had erupted. “Do you know what I’ve just had to listen to? I can’t believe people have to put up with this shit.”
Merrill Lynch’s phone system played classical music whenever someone was put on hold.
“You tell Peter that if I ever have to put up with this shit again I’m taking my money elsewhere.” She slammed down the phone without saying good-bye.
On another occasion, Stewart’s call was transferred to the receptionist, who answered it and sent it back to Faneuil. The receptionist spoke with a mild speech impediment. When Faneuil picked up the phone, Stewart yelled at him, “Do you know who the hell is answering your phones? You call and you know what he sounds like? He says this . . .” Stewart, as Faneuil later wrote in an e-mail describing the incident, “made the most ridiculous sound I’ve heard coming from an adult in quite some time, kind of like a lion roaring underwater.”
Faneuil laughed. He thought she was joking.
“This is not a joke!” Stewart shouted. “Merrill Lynch is laying off ten thousand employees because of people like that idiot.” She slammed down the phone.
Faneuil e-mailed a colleague: “I have never, ever been treated more rudely by a stranger on the telephone.”
That Stewart could be rude, profane, impatient, self-centered, mercurial, and dictatorial was documented in best-selling books like
Martha Inc
. by Christopher Byron and
Just Desserts
by Jerry Oppenheimer. Nearly everyone working at Martha Stewart Omnimedia had witnessed, or been subjected to, one of her fits of anger. So far as anyone knew, she never apologized or acknowledged she might be wrong. As one longtime employee put it, “She has her ways of trying to make amends, but they do not include the words ‘I’m sorry.’ ”
Over the years, she had left a trail of discarded and disaffected former friends, business associates, and employees. By the time she sold her ImClone shares, she had only a handful of people who could reliably be considered friends. These included the Waksals, Johnny Pigozzi, Mariana Pasternak, and Charles Simonyi, the wealthy former Microsoft executive she was widely reported to be dating. She was also close to Susan Magrino, her longtime public relations adviser; Sharon Patrick, the chief executive of Martha Stewart Living Omnimedia; and Sharkey, all of whom also had a business relationship with her.
Still, there were many loyal and longtime employees, and thousands more who sent résumés and wanted to work for her. Stewart had made many people rich beyond their dreams.
For a while Bacanovic had seemed on the brink of joining the charmed circle of people who were genuinely close to Stewart. But recently the relationship between Stewart and Bacanovic had become strained as technology stocks plunged and the September 11 attacks had sent the economy deeper into recession. One e-mail began:
Peter: do nothing. The account is a mess, as is the pension account. I think we need to go over each and every item and evaluate the entire scenario. I think it’s time for me to give my money to a professional money manager who will watch it when I’m too busy and will take a bit more care about overall market conditions and political and economic problems. We have just watched the slide and done nothing, and I’m none too happy. I’ve made two or three horrendous mistakes and not sold when I was still far ahead. Please call me and I’ll work with you.
 
Other Martha Stewart employees who were using Bacanovic because of the pension accounts were also starting to complain. Apart from his undeniable ability to attract and charm clients, it’s not at all clear that Bacanovic was a particularly good stock picker or financial planner. He was swept up in the technology and telecommunications mania of the late 1990s, and some of his favorite stocks, former clients recall, were AOL and
Amazon.com
, both hard hit in the crash, and Urbanfetch, which went bankrupt. One Stewart employee recalls asking Bacanovic what would happen in a downturn. “Don’t worry, I’m really good at managing a down market,” Bacanovic had replied. But he had only been a broker since 1992–and there hadn’t been any down markets since, until the tech bubble burst in 2000. Apart from a few tech favorites, Faneuil’s impression was that Bacanovic simply followed the recommendations of Merrill’s research department. But he had Faneuil buy expensive leather binders to dress up his clients’ account reviews.
That year Stewart certainly had plenty of losses she could blame on Bacanovic. Among them were losses of $59,931 in Amazon, $77,200 in Digex, $113,490 in Lucent, and $65,000 in Sunbeam. All had once been market favorites; only Amazon survived.
As the market continued to drop precipitously from its March 2000 peak, Faneuil knew Bacanovic was under mounting stress, especially from Stewart, his most important client by far. In Faneuil’s presence he often referred to Stewart as “the blonde,” “the bitch,” or the “blonde bitch.” In one e-mail to Faneuil he referred to her as “that witch.”
Faneuil had been dreading yet another direct encounter with Stewart, and now one was at hand.
“What’s going on with Sam?” Stewart demanded impatiently, with no preliminaries.
Despite what Bacanovic had told him, Faneuil was determined to say as little as possible. “Well, we have no news on the company, but Peter thought you might like to act on the information that Sam Waksal was trying to sell all of his shares.” So were Aliza and Elana, he added.
“All of his shares?” Stewart sounded incredulous.
“Well, I’m sure he doesn’t have all of his shares here at Merrill, but what he does have he is trying to sell.”
“Where is ImClone now?”
Faneuil told her it was at $58, down two points. There was a brief pause, and then Stewart erupted.
“It’s unbelievable I wouldn’t get a call! What kind of program are you running over there? It’s down $2 and no one calls me?”
Faneuil’s heart was racing. Then he realized she’d misunderstood him. “I’m sorry, it’s down 2 percent, not $2. I’ll never say points again.”
Now Stewart was screaming as she berated him for this display of incompetence. Finally she paused, her anger seemingly spent.
“I want to sell all my shares.”
“Do you want to place a limit?” Faneuil asked. Since it was a large trade, he thought she might not want to sell below a certain point. “You might want to protect yourself on the downside.”
“No. I want to sell at the market. How am I going to find out about the sale?”
“Well, Ms. Stewart, I could e-mail Annie . . .”
Stewart erupted again, shouting at him, “Absolutely not! You have no right to tell Annie Armstrong about my personal transactions!”
“I’m sorry,” he stammered. “I didn’t mean to imply I’d send the details, just that the trade was executed.”
“Absolutely not! You can’t do that. You can’t tell Annie anything about what goes on in my account.” Faneuil couldn’t believe he had again managed to set off Bacanovic’s most important client. She told him to e-mail the results to her personal e-mail account, and then abruptly hung up without saying good-bye or giving him the chance to ask for her personal e-mail address. Faneuil’s heart was pounding.

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