Martha Stewart: Prosecutors, Merrill in Alleged Backroom Deal

27 January 2004

The high-profile trial of one America's hottest media properties kicked off Monday to an appropriately sensational start.

Lawyers for Martha Stewart alleged a secret backroom tradeoff between Merrill Lynch (stockbroker to the good-taste empress) and federal prosecutors. This purportedly followed Stewart's sale of shares in biotechnology company ImClone in 2001 -- a sale, avers the prosecution, that was triggered by insider knowledge passed to her by the company's former chairman/ceo Sam Waksal.

Merrill, said Stewart's lead lawyer Robert Morvillo, had agreed with the prosecutors to "serve them Sam Waksal's head on a silver platter, and to look the other way with regard to Martha Stewart".

More critcally, Morvillo told the court that key prosecution witness Douglas Faneuil (a former assistant broker at Merrill) was advised by his lawyer to reiterate a lie to authorities about the circumstances of the sale in order to protect the agreement.

The allegations are based on documents Stewart's legal team forced from federal authorities prior to the trial. If proven, they would undermine Faneuil's credibility -- and the case against Stewart.

The defence's key contention is that Stewart's shares were sold under a prearranged agreement with Merrill broker Peter Bacanovic whereby an automatic sale was triggered if ImClone stock fell below $60.

But Faneuil's testimony, effectively smirched by the new allegations, is that no such agreement existed. He had earlier supported Stewart and Bacanovic's 'auto-trigger' claim when interviewed by the Securities and Exchange Commission in January 2002. Later, however, Faneuil changed his testimony after a plea bargain deal.

From Merrill Lynch and Faneuil's lawyer, invited to comment on the potentially case-wrecking allegations, came only the sound of silence.

Data sourced from: Financial Times; additional content by WARC staff