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Friday, Feb. 06, 2004

Douglas Faneuil, the government's star witness against the homemaking entrepreneur, made the remark in response to a question about whether he was promised a better salary in exchange for lying.

"I felt I would be fired if I didn't lie," Faneuil answered.

Faneuil was under cross-examination from a lawyer for Peter Bacanovic, Stewart's former stockbroker and a co-defendant, trying to show that the payment plan Bacanovic arranged for Faneuil had no connection to Stewart's stock trade.

When Faneuil answered instead about believing his job was at risk, lawyer David Apfel asked U.S. District Judge Miriam Goldman Cedarbaum to strike the remark from the record. She did not.

The testimony from Faneuil, 28, put another dent in Stewart and Bacanovic's assertion that they had a pre-existing agreement to sell ImClone when it fell to $60 per share. They are accused of repeatedly lying to investigators and obstructing justice. Stewart is also accused of deceiving investors in her own company, Martha Stewart Living Omnimedia.

Faneuil has already testified that Bacanovic ordered him on Dec. 27, 2001, to pass a secret tip to Stewart that ImClone founder Sam Waksal was trying to dump his shares in the company.

The next day, the government released a negative report about an experimental ImClone cancer drug. The report sent ImClone shares down by nearly 20 percent. The government estimates Stewart saved $51,000 by getting out early.

The former assistant has already testified that Bacanovic - without explicitly asking him to lie - repeatedly pressured him to back up his and Stewart's version.

Faneuil initially did just that, but changed his account in June 2002 and agreed to cooperate with the government and testify against the pair.

Defense lawyers tried to discredit Faneuil as he took the stand for a third day of testimony Thursday.

Apfel introduced e-mails Faneuil wrote about Stewart, apparently trying to show Faneuil was out to get her.

Faneuil told friends that Stewart yelled and hung up on him. One e-mail from Faneuil to a friend in 2001, after he had just ended a phone call with Stewart, said: "I have never, ever been treated more rudely by a stranger in my life."

An e-mail to another friend about the same time said: "Martha yelled at me again today, but I snapped in her face, and she actually backed down! Baby put Ms. Martha in her place!!!"

Apfel also tried to introduce e-mails to show Faneuil and Bacanovic had a joking relationship at work for months after Stewart's stock sale.

But Cedarbaum refused to allow the e-mails into evidence, and instructed jurors not to consider what they had heard.

On the witness stand, Faneuil admitted he joked with Bacanovic at work even as the broker was pressuring him. Faneuil described their relationship as "schizophrenic."

"Everything having to do with the events of Dec. 27 was extremely compartmentalized," Faneuil said.

Apfel asked Faneuil whether Bacanovic had specifically asked him to lie to investigators. Bacanovic had not, Faneuil said - but "I understood what he was telling me."

Faneuil admitted on the stand Wednesday that he has repeatedly used Ecstasy and marijuana, and that he has experimented with the party drug ketamine, or "Special K," and cocaine.

Defense lawyers are also hoping jurors will take his testimony with a grain of salt because he admitted lying by changing his account to the government six months into its investigation.

Robert Morvillo, Stewart's lead lawyer, was expected to begin his own cross-examination of Faneuil later Thursday or Monday. The trial will be in recess Friday.

© 2003 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.

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