Tangled Webs (9 page)
Authors: James B. Stewart
Tags: #History, #United States, #General, #Law, #Ethics & Professional Responsibility
“I must have spoken once or twice with Doug about other matters. At some point, on one of those phone calls, I said, ‘I would like to call Martha Stewart, and I would like to apprise her of the price of the stock, please.’”
“Do you remember what the stock was trading at, at that point?”
“I believe the stock was approximately $60 a share, or something close to it. Slightly above or slightly below. And I don’t recall whether I placed the call from my cell phone or, once again, Doug and I placed the call together. And we did not reach her, so we simply left a message with her assistant, who explained to us that she was in transit.”
“When you were calling her, did you call her at home? At work?”
“We only call the office.”
“Do you know who you spoke with?”
“Yes. Annie, who has been her assistant for several years, and with whom we speak all the time . . .”
“And what was the message?”
“The message was to please call us back, and also to please advise her that ImClone stock was at whatever the price was at that time.”
“ ‘Please call us back’?”
“Yes . . .”
“And you specifically told Annie that ImClone stock was dropping?”
“No. We just gave her the price of the stock.”
“Okay, I’m sorry . . .”
“Then I get another call from Doug, and this call came in after lunch. And that call was that Martha had returned the phone call from an airport, that she was in transit, and he had given her the price of the stock. And, based on the price of the stock, she elected to sell her shares, her remaining shares, in ImClone Systems from her account, her personal account.”
“So Martha called Doug.”
“Correct.”
“You did not speak with her?”
“I did not speak with her that day.”
Helene Glotzer interrupted.
“When you called Annie, can you just try and think, to be as specific as possible, when you asked her to ask Ms. Stewart to please call you back, did you say, ‘It’s urgent, call me back immediately’? Something like that?”
“No. I said, ‘I would like to speak with her, if possible today, regarding ImClone and what the current price of the stock is.’ Understanding that she was in transit and that she sometimes is very, very difficult to reach.”
By way of further explanation, Bacanovic described in detail an earlier phone conversation he had had with Stewart on December 20. “We reviewed each and every position in the account. And we discussed the fundamentals of all the positions. We discussed the overall status of the portfolio, and included in that discussion was ImClone. And so we reviewed ImClone and discussed what her intentions were for ImClone at that time versus my recommendations. . . . And she wanted to hold the stock. And I challenged that by saying, ‘The stock has been clearly declining. Why would you hold it?’ And she goes . . . and at that point, we determined that if, in fact, it fell much further, then we would sell it.”
“Did she give you any indication as to why she wanted to hold the stock?” Glotzer continued.
“Many of my clients invest in certain companies out of loyalty and friendship and they like to say they own each other’s stock.”
“And so your recommendation to her was to sell because the price was declining?”
“Correct.”
Slansky continued the questioning. “Did you hear any rumors on Wall Street or by analysts that, you know, this drug wasn’t going to be approved?”
“None whatsoever.”
“So, going back, she didn’t really want to sell it; you recommended that she sell it. You can continue on from there.”
“So, we made a deal. I said, ‘Okay, if you would not like to sell the stock now, how low are you going to wait before you sell this stock?’ ”
“I’m sorry, on December 20, when you had this conversation, do you remember what the price of the stock was?”
“It was in the mid-60s. And at that point we determined that $60 a share would be a suitable share price, should it ever fall that low. Of course, she never thought it would.”
“And did she place a limit order [an order to sell that would automatically be executed if the price hit $60]?”
“[She] did not. We did not put an order into the system. She does not like doing that . . . so I said, ‘We’ll watch the stock for you.’ ”
Glotzer jumped in. “So, I mean, every day, then, would you basically look at the price of ImClone?”
“Well, while on vacation, this is a little . . . here we have a problem. I mean, I cannot keep up with all my prices during that time. And I was a little bit alarmed on the morning of the twenty-seventh. I hadn’t really thought about ImClone on the twenty-sixth or twenty-seventh, to be honest. I was really relieved, in fact, not to be thinking about ImClone. And when my assistant called me that morning, and all of a sudden ImClone was on my mind again, and I got a price on the stock, I thought, Oh, I better find Martha now. I just had this conversation with her a week ago, and here we are.”
Slansky continued: “You recommended that she sell, you picked a price of $60.”
“Yes.”
“Is that correct?”
“Yes. Yes. Back on the twentieth.”
Slansky asked him to continue.
“In answer to your question, I had not looked at the price of ImClone since I left the office at 1:00 p.m. on the twenty-fourth, which was Monday. The holiday was Tuesday, and Wednesday I was in transit to Florida. So, it is now Thursday. I’m still–I’m just getting settled in for this holiday. This phone call comes in the morning. I haven’t been out of the office for more than a day at this point, and all of a sudden, you know, sooner–much sooner–I didn’t expect ImClone to move that quickly, at least in a decline. And my assistant was telling me, ‘Well, the price of this stock is now at . . .’ lower than when I last looked at it.”
“Do you remember if it was about $60 at this point?”
“I believe it was just at $60. I believe. You know, within pennies of $60. And at that point, I thought, you know, I just had this conversation. This is someone who gets irascible. And I thought, So much for the vacation. Let’s try and track down Martha, find Martha, which is the process I normally go through, and I’ve had to call her all over the world with conversations like this. And you initiate the process, which is calling the office. ‘Is Martha findable?’ Martha got back to us, spoke to my assistant. We did the trade.”
“Did you ever tell Martha Stewart that the SEC had been speaking with Merrill Lynch about sales in ImClone at the end of the year?”
“I said that we had . . . we had been reviewing this internally. And that was all.”
“In other words, you didn’t mention that the SEC was looking into this?”
“No.”
“Did you tell her that anyone was asking questions about her transactions specifically?”
“I did not.”
“Did she ask you that?”
“She did not.”
“Did you say anything that would give her cause for concern, the fact that she sold on December 27?”
“No, because she had no cause for concern. Because we had reviewed this position. I have notes of this conversation. It was completely typical, and she would have had no cause for concern. So, no.”
“And you have notes of that conversation?”
“Well, I mean I have a work sheet that I worked from that day, that we did on the twentieth, where all of this stuff, which is a printout of the screen, with all sorts of markings on it. And so, I mean, all of this was discussed at the time, long prior. And so she had no reason for concern.”
“And the information about her selling–her possibly selling ImClone at 60 would be reflected on that work sheet.”
“Yes. I mean, reflected on the work sheet in a very loose way. I mean, things are highlighted, marked for sales. Some things are circled. I mean, it’s scribbled on.”
Slansky asked how he and Stewart came up with the $60 sales price.
“She didn’t really have a price,” Bacanovic testified. “I said, ‘Listen, what will you settle for? How low does this have to go before you’re prepared to part with this?’ She said, ‘I don’t know.’ I said, ‘Well, how about $60 a share? Does that sound reasonable?’ And the conversation was something like that. She said, ‘Yes, sure, $60.’ ” . . .
“Did you ever tell Martha Stewart that Sam Waksal was attempting to sell his shares on December 27 and 28?”
“I must discuss my business in general in order to reply to that question. I do not discuss other clients’ affairs with other clients.”
“So, are you saying that you know for certain in this instance you didn’t do it?”
“Inasmuch as I make a practice of not discussing any client’s business with another client, I would have to assume that in this case as well. So, the answer to your question would be yes. I would not discuss his transactions with her, in the same way I would not discuss her transactions with him, or even with her own daughter, for that matter.” Bacanovic elaborated: “I don’t like discussing clients’ business, even if they’re people like the Waksals. And I did not get to be a first vice president at Merrill Lynch by discussing other people’s business and by being indiscreet.”
“And Doug Faneuil, have you had conversations with him about the investigation?”
“I told him, he knows that I’m here right now, because I’m out of the office for a day. That’s it.”
“You haven’t talked about the investigation?”
“No. Not only did I not talk to him about it, we gave him a week off because the stress levels were so high, and we felt sorry for him, and we gave him a week off. Which, of course, only made my situation that much worse, because I’ve got big business, and my very smart assistant was out on vacation at the beginning of the year. So, no.”
And there the deposition ended. Bacanovic had spoken with confidence and poise, showing none of the stress he’d attributed to Faneuil. Bacanovic hadn’t even hired his own lawyer, although Merrill Lynch had offered to pay for one. Marcus, the Merrill Lynch lawyer, had only spoken a few times. Stewart, in Bacanovic’s telling, had a solid alibi: with Bacanovic’s encouragement, she’d decided to sell the shares for $60 on December 20, and did so on December 27 when told they were trading at or near that price. Bacanovic said he had written notes of the December 20 conversation, which Merrill Lynch had already produced to the government. Bacanovic knew nothing about the FDA’s adverse ruling on Erbitux and hadn’t spoken to any of the Waksals.
The SEC lawyers were impressed. It was hard not to like Bacanovic. He and the lawyers even managed a few laughs in the course of the questioning. True, a few of his answers seemed curiously elliptical, especially the discussion of whether he mentioned the Waksal trading to Stewart. They’d had to pry a simple denial out of him. It was also curious–and too bad for Stewart–that no stop-loss order to sell ImClone at $60 had been entered into the system. That would have been irrefutable proof of the alibi. And then there was the timing. Stewart sold on the same day that the Waksals were dumping their shares, and a day before the FDA made its announcement. But perhaps it simply was a remarkable coincidence. In all major respects, his story aligned with Stewart’s: neither knew anything about the FDA’s negative decision on Erbitux. He’d agreed with Stewart that she’d sell her ImClone shares if they fell below $60, which they did on that day.
There was simply no evidence to support the SEC lawyers’ initial suspicion that a tip from Waksal had prompted Stewart’s sale. When the lawyers in the U.S. Attorney’s office subsequently reviewed Bacanovic’s testimony for possible criminal charges, they essentially halted the investigation into Stewart’s trading for lack of any proof, while continuing their investigation into the far more promising Waksal case.
And there the investigation might have languished, with no one ever knowing–or caring–that Martha Stewart showed uncanny timing in disposing of a few hundred thousand dollars of ImClone stock or that Peter Bacanovic was her stockbroker. Throughout her life and career, Stewart had shown herself to be a consummate risktaker, always coming out ahead. As of February 2002, she had done so again.
TWO
“Everyone Is Telling the Same Story”
O
ver a month had passed since Faneuil’s interview with the SEC, for which he’d received such praise from the Merrill officials. He’d heard nothing further from the government. He’d been trying to follow his lawyer’s advice to keep his head down. He knew Bacanovic had traveled downtown for another interview (though not that Bacanovic had been subpoenaed), but Bacanovic acted like nothing had happened, and told Faneuil nothing about it. At the office, the usual routine reasserted itself. Faneuil wondered if Merrill Lynch had indeed reached that “silver platter” deal with the government to implicate the Waksals in return for dropping the Stewart matter.
ver a month had passed since Faneuil’s interview with the SEC, for which he’d received such praise from the Merrill officials. He’d heard nothing further from the government. He’d been trying to follow his lawyer’s advice to keep his head down. He knew Bacanovic had traveled downtown for another interview (though not that Bacanovic had been subpoenaed), but Bacanovic acted like nothing had happened, and told Faneuil nothing about it. At the office, the usual routine reasserted itself. Faneuil wondered if Merrill Lynch had indeed reached that “silver platter” deal with the government to implicate the Waksals in return for dropping the Stewart matter.
Then one day Bacanovic called Faneuil into his office and brandished a computer printout. “Look what I found,” he said. Faneuil examined the document and saw that it was a list of all Stewart’s stock holdings from December. It seemed to be the same list that Bacanovic had used to discuss the end-of-year tax-loss selling in Stewart’s account. Faneuil noticed the ImClone entry and, right next to it, “@ $60,” in ink, evidently in Bacanovic’s writing. “See,” Bacanovic said. “Proof!”
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