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Brokerage assistant key to Martha Stewart case

By Erin McClam
The Associated Press

	AP Douglas Faneuil, an assistant to Martha Stewart's stockbroker, will testify against Stewart.
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NEW YORK — Martha Stewart is nothing less than a national icon, a politely smiling media titan whose tasteful imprint graces books and bed linens, garden boots and garlic presses, clipped-out recipes on refrigerator doors and bulletin boards.

Douglas Faneuil is a 28-year-old, baby-faced former brokerage assistant who lives in relative obscurity in an apartment in Brooklyn, famous among his friends as a fierce competitor at pingpong and air hockey.

In perhaps the apex of the two-year parade of U.S. corporate scandals, the latter could be the deciding factor in whether the former goes to prison.

"Doug is probably one of the most benevolent, sweet, kind and gentle human beings I know," said Sally Haskell, a friend who has known him for four years.

Coming to a Manhattan courtroom: David vs. the Goliath of graciousness.

It was 1:39 p.m. on Thursday, Dec. 27, 2001, at a Merrill Lynch brokerage office in Manhattan, when, according to the government, Faneuil took a call from Stewart, who was on her way to a Mexican vacation.

Prosecutors say Faneuil, on orders from his boss, broker Peter Bacanovic, told her that the family of ImClone Systems founder Samuel Waksal was trying to unload its shares of ImClone stock.

Thirteen minutes later, Faneuil, on orders from Stewart herself, sold her stable of 3,928 shares of ImClone stock, netting about $228,000, according to the government.

Late the next day, ImClone announced that the government had issued a negative report about its new cancer drug — news that sent the company's stock plummeting 18 percent. Waksal later admitted he had early knowledge of the report and had tipped his daughter to sell ImClone.

Stewart was never charged with trading on news of the report. Instead, the indictment against her centers on charges that she repeatedly lied to investigators about why she sold.

Stewart and Bacanovic, indicted with her in June, present a far different story — that weeks earlier, they had struck an oral agreement to sell Stewart's shares if the stock fell below $60.

In initial interviews with Merrill investigators and the government, Faneuil backed up that account. Then he hired a lawyer and, in June 2002, changed his story.

On Oct. 2, 2002, Faneuil pleaded guilty to a misdemeanor and admitted in court papers that he had received an extra week of vacation and a free airline ticket in exchange for misleading investigators about the stock sale.

It was an extraordinary turn for the quiet, ambitious assistant. It also cemented his role as the government's star witness in the most tantalizing spectacle of the white-collar scandals — the trial of Martha Stewart.

Details about Faneuil's upbringing in Newton, Mass., are difficult to come by — less because of his involvement in the Stewart case than because, by most accounts, he was quiet and shy, blending in with his peers.

At upper-middle-class Newton South High School, where he graduated in 1993, he is remembered by classmates as unassuming and polite. Many said they could remember only saying hello to him in the hallways.

One moment in the spotlight: In a senior-class production of "South Side Story," a spoof of the musical "West Side Story," Faneuil, 17 years old, appeared as a nerd and sang a solo.

In the meantime, he held a teenager's typical after-school jobs — scooping ice cream for a while, delivering pizza.

"He was very polite, very honest," said Konstantine Chronopoulos, owner of Bill's Pizzeria in Newton, where he said Faneuil worked on and off for a year. "All around just a good employee — a very nice kid."

And when news surfaced, nine years later, that the former delivery boy was wrapped up in a highly publicized stock scandal? "I was surprised," Chronopoulos said. "Very surprised."

Faneuil studied political science and art at tiny Bennington College in Vermont and Vassar College in New York. He worked for four years at D.E. Shaw, a Manhattan-based hedge fund, and joined Merrill Lynch in the spring of 2001, signing on as an assistant to Peter Bacanovic.

Faneuil left Merrill after the Stewart scandal exploded. Today, he remains unemployed, but friends say he is working occasional temp jobs.

Most of Faneuil's friends in New York and elsewhere have closed ranks around him, declining to discuss even non-Stewart-related aspects of his personality. But those who will talk about him describe him as fun-loving and gentle.

"He doesn't have a mean bone in his body," Haskell said.

Faneuil himself declined an interview request from The Associated Press.

It will likely be late January or early February when prosecutors call Faneuil to tell his story, a version of events extremely harmful to Stewart if jurors choose his word over hers.

Stewart is charged with five counts, including obstruction of justice, securities fraud and lying to investigators. She is not charged with insider trading.

She insists her version of the ImClone sale is accurate, even writing on a personal Web site: "Based in large part on prior discussions with my broker about price, I authorized a sale of my remaining shares in a biotech company called ImClone."

Legal experts say Faneuil's testimony for the government will be nothing less than pivotal — particularly if, as many analysts believe, the defense decides not to gamble by putting Stewart herself on the stand.

In any case, Stewart's attorney, Robert Morvillo, is likely to attack Faneuil's loyalty and credibility, focusing on his eagerness to tell the government what it wanted to hear to keep himself out of more legal trouble.

"Bob Morvillo is fabulous, but I think Faneuil's youth and inexperience may play well to the jury as someone who was taken advantage of by Stewart and Bacanovic," said Seth Taube, a former Securities and Exchange Commission lawyer now in private practice.

"I think the government will portray him as someone scooped up by people more sophisticated than himself."

Faneuil's lawyer, Marvin Pickholz, declined to discuss how he is preparing Faneuil for the intense cross-examination he'll get at trial, except to say "he's doing fine, just fine. He's handling it very well."

And, confronted with the description of Faneuil by his friends as trustworthy, innocent and somewhat overwhelmed by the events surrounding him, Pickholz hinted that the qualities should work in his favor.

"That's exactly right," he said. "And I think the prosecutors know that, too."

Copyright © 2003 The Seattle Times Company