Defense Can't Land Body Blow on Faneuil

Martha Stewart's team copes with a 'word-for-word' recall of a phone conversation.
By Gregg Greenberg ,

Updated from 1:44 p.m. EST

Robert Morvillo might have stopped the bleeding. But by the time Douglas Faneuil stepped off the witness stand Monday -- his life changed forever by a single stock trade -- the damage had been done.

Martha Stewart's attorney spent the day retaking lost ground for his client after particularly damaging testimony last week by the former Merrill Lynch broker's assistant. Whether Morvillo's triage was good enough to save his client remains to be seen. But the white-collar defense specialist could claim no direct hit in Faneuil's fourth and last day of testimony.

A few points were scored against Faneuil in the morning session, which Morvillo spent testing his occasionally imperfect memory of the events of Dec. 27, 2001. But Faneuil told the court he had a "word-for-word" recollection of his telephone conversation with Stewart the day she made her now-famous sale of about 4,000

ImClone Systems

(IMCL)

shares.

"I think I recall it pretty clearly," Faneuil said. "It's fair to say word-for-word."

"In order and sequence?" Morvillo pressed, suggesting Faneuil's memory was conveniently flawless when it came to a client he is on the record as disliking.

"I told you everything I can recall," Faneuil replied.

Faneuil said he remembered the conversation verbatim, despite making and receiving as many as 75 phone calls that morning -- calls that he recalled in far less detail.

The 28-year-old's account of the events surrounding the call are at the heart of the government's case against Stewart in federal court in Manhattan, where Stewart and her Merrill broker, Peter Bacanovic, are being tried on criminal obstruction and other charges.

Morvillo hammered Faneuil with detailed questions about his story that Bacanovic ordered him to give Stewart the information that led to her perfectly timed ImClone divestiture: that ImClone's founder, Sam Waksal, and his family were frantically unloading shares in the biotech company.

Faneuil said he received two or three calls from Waksal's daughter Eliza, "many" from Sam Waksal's accountant, and had numerous conversations with Merrill's stock-clearing and transfer departments.

Morvillo also went after Faneuil's credibility through a strategy employed last week by Bacanovic's lawyer, David Apfel. He drew attention to the long interval between Stewart's sale and Faneuil's decision to come forward to prosecutors.

Reminding the jury that Faneuil has a plea agreement in which he avoids jail time, Morvillo asked: "At what point did you agree with Peter Bacanovic to commit a crime?"

"I would say there was a tacit understanding," Faneuil replied, "to lie about the real reason for Martha Stewart's stock sale."

It was shortly after the sale, Faneuil claims, that Merrill's office turned "schizophrenic" and he began to receive signals -- intimidation from Bacanovic and special treatment from the Merrill office -- that suggested he should go along with Stewart's story.

Morvillo asked how Bacanovic transmitted this secret message.

"He scared me," Faneuil said.

"How did he scare you?"

"He was yelling, he was speaking forcefully, he was repeating what I knew to be false," Faneuil replied. "I was scared because I knew the real reason for Miss Stewart's trade. I knew it was a lie."

"But Martha Stewart never intimidated you to engage in a coverup?"

"No," said Faneuil.

Faneuil brought his story to prosecutors in June 2002, the same month, he testified, that Merrill placed him on probation for tardiness. Under questioning by Morvillo, Faneuil testified that he has had extensive meetings with prosecutors in the 18 months since, including roughly 12 in the last 90 days.

Morvillo, trying to repair damage done last week when Faneuil portrayed his client as petty and prone to tantrums, was affable and direct in his cross-examination -- a stark contrast to Apfel's combative tone.

Faneuil said the meetings included, among other things, mock trials in which prosecutors tried to anticipate the questions he would be asked by Morvillo. "A few people in the office pretended to be you," he said.

"Did they get heavyset people?" inquired the rotund lawyer. Jurors chuckled.

Faneuil said he had never been intimidated by Stewart, but sensed she was angry with him for suggesting that he email the confirmation of her ImClone trade to Stewart's assistant, Anne Armstrong. Faneuil ended up emailing the trade confirmation to Stewart's personal account.

Armstrong was called as the government's final witness for the day. But she was unable to complete her testimony after being overcome with emotion about testifying against the woman who had employed her since 1998. Armstrong is scheduled to lead off Tuesday's testimony.

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