Brokerage assistant seen as key witness in Stewart fraud trial

NEW YORK — Martha Stewart’s fate — and the future of the vast empire that has put her name on everything from books and bed linens to garden boots and garlic presses — may well be in the hands of a lowly brokerage assistant by the name of Douglas Faneuil.

Faneuil, 28, will be the government’s star witness at Stewart’s securities fraud trial, set to begin in mid-January.

Faneuil was fired from Merrill Lynch after pleading guilty to taking a payoff to keep his mouth shut about Stewart’s stock trading. His version of events in the insider trading scandal could prove extremely harmful to her.

Faneuil lives in relative obscurity in an apartment in Brooklyn, famous among his friends as a fierce competitor at pingpong and air hockey. Friends describe him as a sweet, gentle, guileless soul.

According to the government, Faneuil took a call from Stewart on Dec. 27, 2001. Prosecutors say Faneuil, on orders from his boss, broker Peter Bacanovic, told Stewart that the family of ImClone Systems Inc. founder Samuel Waksal was trying to unload its stock in the pharmaceutical company.

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

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. Waksal later admitted he had advance knowledge of the report.

Stewart and Bacanovic, who was indicted with her in June, have denied any wrongdoing. They have said they had a standing oral agreement to sell Stewart’s stock if it fell below $60.

Faneuil backed up that account in initial interviews with investigators. But then he hired a lawyer and changed his story.

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

Legal experts say Faneuil’s testimony will be nothing less than pivotal — particularly if, as many analysts believe, the defense decides not to put Stewart herself on the stand.

Stewart’s attorney, Robert Morvillo, is likely to attack Faneuil’s loyalty and credibility and portray him as eager 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. "I think the government will portray him as someone scooped up by people more sophisticated than himself."

Faneuil declined an interview request from The Associated Press.

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.

Friends say he is now working occasional temp jobs.

Most of Faneuil’s friends in New York and elsewhere have closed ranks around him, declining to discuss his personality. But those who will talk about him describe him as an innocent soul, overwhelmed by events.

Faneuil’s lawyer, Marvin Pickholz, suggested those qualities should work in his favor in court.

"And I think the prosecutors know that, too," he said.