The offer was tempting. But to stop now and ask for a lawyer would be like waving a red flag, immediately implicating himself. He didn’t really have a chance to think. “No, it’s okay,” Faneuil said.
Marcus placed the call. Helene Glotzer, the SEC’s regional director in New York, and Jill Slansky, senior counsel, came on the line. They introduced themselves, and Slansky explained that this was just a preliminary investigation into ImClone trading, and that Faneuil was not a target. They asked him to answer to the best of his recollection and not to speculate. And he must answer truthfully. Even though the interview wasn’t under oath, failure to do so was a federal crime. Did he understand that? Faneuil said he did.
Faneuil felt he was truthful–up to a point. He answered everything they asked about the Waksal trading and events leading up to it, which by his estimate accounted for 98 percent of the interview. There were only a couple of questions about Martha Stewart. He said she’d called, asked for a quote on ImClone, and after he provided it, told him she wanted to sell her shares. That was all. They didn’t ask any follow-up questions. What he said was true in the narrowest sense.
Everyone congratulated Faneuil when the interview was over. The SEC didn’t seem interested in Martha Stewart! He didn’t care about the Waksals. Bacanovic wasn’t involved in that and Faneuil had told the truth. Maybe he didn’t have to worry.
That evening Bacanovic called. “What did they ask about?”
“You know, Peter, they really didn’t focus on Martha at all. They mostly asked about Sam. But they did ask me about Martha.”
“What did you say?”
“I just told them that Martha asked for a quote and sold her stock.”
“Good,” Bacanovic said.
The next day, Faneuil was trying to put the whole Martha Stewart mess out of his mind. Then Heidi DeLuca called. She was Stewart’s personal accountant, and she sounded annoyed.
“Doug, what’s up with this ImClone trade?”
Faneuil felt a sinking feeling. Now what? He tried to sound nonchalant. “I don’t know. What’s up?”
“Well, this ImClone trade completely screwed up our tax-loss-selling plan. We had everything down perfectly, and this screwed it all up! What happened?”
If he’d needed any further evidence that Bacanovic’s insistence about the tax-loss selling was a fabrication, this was it. Of course the trade had screwed things up, because the whole point of tax-loss selling was to generate losses, and ImClone was a gain. “I don’t know,” he told her. “You’ll have to speak to Peter,” who was still on vacation. As soon as he finished, Faneuil put his head in his hands. He looked so devastated that an intern working nearby came over to console him. He insisted he’d be okay, but then again borrowed someone else’s cell phone and called Bacanovic.
“Peter, what the hell is going on? Heidi DeLuca just called me.” He told him how upset she was that the ImClone sale had screwed up the tax-loss-selling plan.
Bacanovic erupted again. “Martha Stewart sold that stock because there was a predetermined price at which we decided to sell!” It was a replay of their conversation about the tax-loss selling, with Bacanovic talking rapidly and constantly, only this time the alibi was that Stewart had decided to sell if ImClone shares hit $60. Faneuil wanted to interrupt. He felt like screaming, “This story is utter bullshit and you’re acting like an idiot.” Once again, he couldn’t find an opening.
“Okay?” Bacanovic breathlessly concluded. “Okay? Okay?”
Faneuil grudgingly acceded, just to get off the phone. He was stunned that Bacanovic had changed his story without even acknowledging the prior tax-loss-selling rationale. Faneuil knew the $60 story was equally false. He’d never heard a word from Bacanovic about any decision to sell ImClone at $60, as he surely would have, since Bacanovic was away and Faneuil was monitoring the markets. Besides, when he spoke to Judy Monaghan, she, too, told him that Bacanovic had ascribed the trade to tax-loss selling.
Faneuil’s anxiety came back in full force. He was haunted by Slansky’s warning that failure to tell the truth was a crime. He felt he’d never seriously done anything wrong in his life. He thought of himself as a good citizen, a moral person. Until his testimony, he’d done nothing wrong in the ImClone trading. Now he felt he’d lied, or at least failed to tell the whole truth. Bacanovic had thrust him into the middle of this. So why was he protecting him now? He wasn’t sure. He thought about Marcus’s offer to get him a lawyer. Now that he had some time to think about it, and wasn’t flanked by four Merrill lawyers, it seemed appealing. He began calling lawyers he knew, asking if they’d represent him. One by one, they turned him down. He called six, exhausting his list of possibilities. They were all in firms with some ties to Merrill Lynch, and said representing him would pose a conflict. He began to wonder, Would anyone risk a clash with powerful Merrill Lynch? He felt increasingly alone.
That evening Faneuil was in Haskell’s apartment when Zeva Bellel, his old friend from Vassar, now living in Paris, walked in. She was staying with Haskell while she was in New York. She could tell something was wrong, and when she asked him, Faneuil told her the story of the Waksal and Stewart trades and subsequent events. The Waksals “were in a heated rush to sell because they thought the FDA was not going to approve a drug that ImClone was promoting at the time,” he told her. He was upset about his SEC testimony. He told her he’d never been contacted by the SEC before, never had to testify, so he’d had no experience with that kind of thing. Later he elaborated on his frustrations with Bacanovic. As Bellel recalled the conversation, Faneuil told her he’d called Bacanovic. He was “looking for advice, he was looking for support, and said, ‘What happened? What’s going on? Why are they interested in the sale?’ ” Bellel recalled. “And Peter responded very firmly and very forcefully and said, ‘Listen, nothing happened. There was nothing wrong with the sale. This is how it all happened. End of story.’ And he told me he was at a loss. He felt totally abandoned, betrayed and frightened, because he knew very well that what Peter had just described as the sequence of events that took place that day leading up to this sale was totally inaccurate.”
The next afternoon, Monaghan thought Faneuil looked so nervous and stressed out that she asked if he was feeling okay. He said he was. “Why don’t you take a friend out to dinner, and we’ll pick up the tab,” she suggested.
That Friday, Faneuil went to see his therapist. The stress was intolerable. He asked if client-therapist conversations were confidential, protected from disclosure in court, and when assured they were, he poured out the entire story. It felt good getting it off his chest to a sympathetic listener. His therapist seemed shocked. “I wouldn’t normally say this, but I do know a lawyer who might be able to help you. We’ll get to how you feel about all this, but you need a different kind of help first.” The name she offered was Jeremiah Gutman.
Gutman was an unusual choice, with virtually no experience in securities matters and insider trading, but at least he had no conflict with Merrill Lynch. He was a well-known civil rights lawyer, a founder of the New York Civil Liberties Union and a board member of the American Civil Liberties Union. Among his clients were antiwar activists Abbie Hoffman and Jerry Rubin as well as the Reverend Sun Myung Moon and the Hare Krishnas. Faneuil called Gutman right after his therapy session and made an appointment for the following week. On Sunday evening, he took up Monaghan’s offer for a dinner on the firm. He and Haskell went to Gramercy Tavern, a popular–and expensive–restaurant in the Flatiron district.
M
artha Stewart returned from vacation on Sunday, January 6. From Las Ventanas, she and Pasternak had flown to Panama, where they celebrated the fiftieth birthday of Jean (Johnny) Pigozzi on Pigozzi’s yacht. Among the guests was Sam Waksal, and Stewart had gotten her chance to quiz him about the ImClone situation. He filled her in on the FDA decision, ascribing it to bureaucratic problems and not a clinical failure of Erbitux. The cost of the trip amounted to $17,000–the private jet, helicopters to get Stewart to and from Pigozzi’s yacht, Las Ventanas, where the suite alone was $1,500 a night. Stewart told DeLuca, her accountant, to charge the entire amount to Martha Stewart Living Omnimedia as a business expense. The expense report said only “meeting with Steve Schwarzman,” as if their chance and brief encounter amounted to a business meeting. (A Blackstone spokesman said that Schwarzman recalls a brief encounter, which was “accidental, and purely social.”) Even though the company reimbursed her for the full cost of the trip and Pasternak was facing financial pressures, Stewart ordered DeLuca to have Pasternak “kick in” her “fair share,” money that went to Stewart, not the company.
The next day, January 7, was Bacanovic’s first day back in the office. He looked tanned and relaxed despite the tumult of the previous week. He made no mention of the Stewart situation, although Faneuil saw him huddling with Monaghan in her office. At 11:22 a.m., Bacanovic called Stewart at her office, but she was en route to her Connecticut TV studio, and Armstrong didn’t answer. At 11:44 a.m. there was a call from Stewart’s Connecticut studio to Bacanovic, which lasted twenty-two minutes, phone records show. During that twenty-two minutes, they would certainly have had the opportunity to talk about the investigation and what Bacanovic was going to tell the SEC later that day.
Soon after that call, Bacanovic and Monaghan left for Merrill’s downtown offices and met with Marcus and the other Merrill Lynch lawyers, who debriefed him and gave him the same advice they’d given Faneuil, which was to tell the truth. At 1:00 p.m. they placed a call to the SEC, and Glotzer and Slansky again came on the line. They, too, reminded Bacanovic that he was obliged to tell the truth and that failure to do so was a crime. They added that if at any time he wanted to end the interview, he was free to do so.
The SEC lawyers asked Bacanovic about his background, his relationships with Stewart and the Waksals. Bacanovic described his calls from Faneuil reporting the Waksals’ attempts to sell their shares. Then Glotzer asked him to tell them about Stewart’s trading.
“About a week before, on December 20 or so, she and I decided that if ImClone stock fell below $60, she’d sell it.”
“Who is ‘she’?”
“I’m sorry, Ms. Stewart. And that day [the twenty-seventh] ImClone was dropping, so I called her . . . I told her it was falling below $60 a share, and she sold it.”
So it was Bacanovic–not Faneuil–who spoke to Stewart and took the order to sell? That seemed to be what Bacanovic was saying, but Glotzer asked for clarification to make sure.
“Who placed the order for Ms. Stewart?”
“I did.”
This must have come as a surprise to the Merrill Lynch lawyers and Monaghan. Bacanovic had already told Monaghan that Faneuil had handled the trade and that the selling was part of a tax-loss-selling strategy. But no one said anything.
T
hat same morning, Faneuil had approached Monaghan and said he wanted to take Merrill Lynch up on its offer for him to hire his own lawyer. Monaghan seemed surprised. “Well, Doug, if you feel that it is necessary to do that, yes, we will fulfill our commitment as we offered it to you, but I’m a little surprised. I mean, all you need to do is–you answered the questions and you were direct. So if you feel the need to go and speak to an outside counsel, then I’ll support you. Go ahead.”
The next afternoon Faneuil arrived at Gutman’s office at 11 Park Place. Gutman wore a beard, was heavyset, and sported a cape. As he had with his therapist, Faneuil unburdened himself, telling Gutman the entire story. He sensed his job might be in jeopardy at Merrill Lynch. He didn’t feel anyone really cared about him, notwithstanding Monaghan’s support for his getting a lawyer, which seemed lukewarm, in his view. “I don’t have any dreams of being an investment banker,” Faneuil told Gutman. “If I lost my broker’s license I wouldn’t really care.”
Gutman swept those concerns aside. “You have no choice but to come forward and correct your testimony,” he said. “The minute you leave this office I’m going to call the SEC and we’ll go down there tomorrow. This is absolutely what you have to do. You made a mistake, but nothing will happen to you if you admit it now. They’ll understand.”
Faneuil started to sob. “I can’t believe this is happening,” he said. “Peter is my friend. I mean, I know he put me in this awful position, but I just can’t believe this is happening.”
“He’s not your friend,” Gutman said sharply. “He did a horrible thing to you. He doesn’t care about you at all.”
On some level Faneuil knew Gutman was right. He had to correct his statement and implicate Bacanovic. And yet the prospect seemed overwhelming. He had to admit he lied. He felt physically sick. “I can’t do it,” he finally stammered, wiping away tears. “I can’t go down there tomorrow. I just can’t even envision it. I’m not saying no, I won’t do it, but I just need a few days to let this sink in and face the decision.”
Gutman seemed disappointed, but didn’t press him. “I’ll wait to hear from you.”
A couple of days later, Faneuil was still wrestling with his dilemma when Gutman called him and told him to come to the office. Gutman’s demeanor seemed to have changed. “I had a very interesting conversation with Dave Marcus,” Gutman said, referring to the Merrill Lynch lawyer who was handling the matter. “He told me you did a great job with your SEC testimony. He felt there was really nothing to add and hoped you didn’t do anything drastic.” Obviously Marcus suspected there was more to the story than Faneuil had divulged, and Marcus wanted Faneuil to keep his mouth shut.