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The U.S. government’s chief witness in the obstruction trial of MarthaStewart and her stock broker Peter Bacanovic displayed a flair for thedramatic Wednesday. Stock broker’s assistant Douglas Faneuil raised his voice as he imitatedStewart and his boss Bacanovic during critical phone calls bothon and after Dec. 27, 2001, when Bacanovic allegedly told him towarn Stewart that ImClone Chairman Samuel Waksal was dumping hisshares, and Stewart told Faneuil to do the same. After Bacanovic learned of the Waksal sales and said “Oh my God. GetMartha on the phone,” Faneuil did just that. He said Stewartreturned his call and said “This is Martha. What’s going on with SamWaksal?” When Stewart was told that Waksal was trying to sell all of hisshares in ImClone, she asked for and received a price quote and thentold Faneuil to sell her 3,928 shares in the company. Then Faneuil asked if he should send a confirmation on the sale to Stewart’s administrative assistant, Ann Armstrong. “She got extremely upset with me for even mentioning it,” Faneuilsaid in his second day on the stand Wednesday. Then he related how anaggravated Stewart said, “Absolutely not — you have no right to tellMs. Armstrong about my personal transactions.” In the days that followed, as Merrill Lynch compliance officers began toquestion the 28-year-old broker’s assistant, Faneuil had the firstof several animated conversations with Bacanovic about the events ofDec. 27. Lifting his voice again to an urgent pitch as he faced the jury, he saidBacanovic frantically said, “It was tax-loss selling! We came upwith a plan!” “I tried to get a word in edgewise, but he cut me off every time, hekept telling that same story, that it was tax-loss selling and hecompletely ignored me and wouldn’t let me speak it all,” Faneuilsaid. “Then he said ‘OK?’ and when I didn’t say anything, he again said’OK?’ Lowering his tone to one of resignation, Faneuil said heeventually responded “OK.” Faneuil also told how Bacanovic later insisted that the ImClonesales had nothing to do with Waksal and, this time, insisted thesales were part of a standing instruction to unload Stewart’sImClone shares if the price sunk to $60 per share. One meeting, at a local coffee shop near their Rockefeller Centeroffices, he said, involved a long discussion about Bacanovic’s riseto prominence at Merrill Lynch, his association with Stewart thatpredated her own rise to fame, and the loyalty he felt toward her as afriend. Faneuil said he told Bacanovic he knew what had happened on themorning of Dec. 27, and that it had nothing to do with a plan to sellthe stock. “He put his hand on my shoulder and said, ‘With all due respect, youdon’t,’” Faneuil said. In another phone conversation, Bacanovic told Faneuil “I’vespoken with Martha, I’ve met with her. Everyone is telling the samestory that it was a $60 stop-loss order. We are all on the same page andit’s the truth!” The dramatic testimony came in the second day of the government’s effortto present Faneuil as a credible witness as it seeks to prove thatStewart and Bacanovic schemed to derail a federal investigationinto the ImClone sales. As prosecutor Karen Patton Seymour led Faneuil through the paces, heappeared relaxed, looking directly at the jury and showing flashes ofhumor as he admitted first lying to Merrill Lynch compliance officersand then investigators with the Securities and Exchange Commission andthe Southern District U.S. Attorney’s Office. During the brief period of cross-examination that followed, Bacanovic’s attorney David Apfel sought to defuse the effectiveness ofFaneuil’s imitations of Bacanovic and Stewart. “Did you take any acting lessons in preparation for your appearance incourt?” Apfel asked. “No, certainly not,” Faneuil replied. “I think we should move on,” Judge Miriam Goldman Cedarbaum said. It wasone of the first of many instances in which the judge upbraided Apfel for being argumentative in his questions or straying into improperlines of inquiry. SENSITIVE QUESTIONING One sensitive line of questioning centered on Faneuil’s drug use, asubject that was heatedly debated before the jury was brought into theroom at the start of the day. Stewart’s attorney Robert Morvillo of Morvillo, Abramowitz, Grand,Iason & Silberberg, questioned Faneuil on the witness stand, tryingto prove that he lied to the government about using marijuana andecstasy during the time he was at Merrill Lynch. Later, with the jury in the courtroom, Faneuil admitted to Apfelthat he had also used cocaine “once or twice,” and had taken the drugKetamine. When Faneuil insisted he had told the truth, Apfel highlightedthe fact that it was Faneuil who pulled the trigger on theStewart trade. He also worked to show Faneuil was only offering hislatest version of the story now to escape prison. Faneuil is due to be sentenced in June for receiving extracompensation from Bacanovic to keep the truth from the government.Under questioning from Seymour, Faneuil also told about speakingwith the SEC by phone on Jan. 3, 2002, with Merrill Lynch in-houseattorney David Marcus and a second Merrill Lynch officer by his side. Faneuil told the SEC about the Waksal sales, but, in regards to Stewart, said only that she had called on Dec. 27, asked for a quote,and told him to sell the stock. After the meeting, a worried Faneuil retained attorney JeremiahGutman, who told him to march down to the SEC and tell them the truth.Faneuil said he started crying. “I said ‘I can’t do it. I just can’t even envision it. In my heart Iknew it was the right thing to do,’” he said. Later in January, said Faneuil, Gutman told him that Marcussaid Faneuil had done “a good job” with the SEC and that he hopedFaneuil wouldn’t “do anything drastic.” Faneuil was also told by Gutman, he said, that Marcus hadrelated how Merrill Lynch had a deal with the SEC to serve up Sam Waksal”on a silver platter,” but would look the other way on Stewart. At this point, Faneuil said, he asked Gutman “does that changeyour advice?” Gutman was no longer urging him to come forward, Faneuil said,and instead advised him to “lay low.” Merrill Lynch released a statement Wednesday denying that there was anysuch deal in place. In March, Faneuil said, he was preparing to go to the U.S.Attorney’s Office with Merrill Lynch attorneys. Gutman told his client he would not be attending the meeting.And when Faneuil asked the attorney what to do, Gutman allegedlyreplied, “Don’t lie, but stick to your story.”

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