Tangled Webs (20 page)
Authors: James B. Stewart
Tags: #History, #United States, #General, #Law, #Ethics & Professional Responsibility
“What’s your best recollection of what was actually said?” Judge Cedarbaum asked.
“He said I had to lie for my boss.”
Strassberg and Morvillo had no questions, and the prosecution rested.
A
s the government had feared, one of the first witnesses the defense lawyers called was Jeremiah Gutman, Faneuil’s former lawyer, the eccentric civil rights lawyer who, according to Faneuil, had told him to “lie low.” No one knew what Gutman would say. He had declined to be interviewed by either prosecution or defense. Would he demolish Faneuil’s credibility by denying the silver platter story?
s the government had feared, one of the first witnesses the defense lawyers called was Jeremiah Gutman, Faneuil’s former lawyer, the eccentric civil rights lawyer who, according to Faneuil, had told him to “lie low.” No one knew what Gutman would say. He had declined to be interviewed by either prosecution or defense. Would he demolish Faneuil’s credibility by denying the silver platter story?
Strassberg handled the questioning for Bacanovic.
“Mr. Gutman, did you ever tell Mr. Faneuil that David Marcus of Merrill Lynch had told you that Merrill Lynch had a secret deal with the government to hand over Sam Waksal on a silver platter and to look the other way with respect to Ms. Stewart?”
“I told him something like that, but certainly not in the detail and with the language that you have phrased it.”
“Could you tell us what it is you told him?”
“I told Faneuil, after having a conversation with Marcus, who represented Merrill Lynch, that Marcus had told me that he thought he was working something out with the government by which the whole investigation would go away and that there would be nothing to worry about. . . . I told him that Marcus had told me that he was working on making a deal, not that he had one, and that the deal would involve getting all the Merrill Lynch people off the hook and then let the chips fall where they may.”
Gutman also recalled his advice to Faneuil to correct his testimony. “I recommended that he have independent counsel who will advise him on whether or not he should take the Fifth Amendment. He should go with him rather than have Mr. Marcus go with him, whose interest was conflicted with his, and that he should explore that way of proceeding. He told me that he was afraid of them all, that they were merciless and immoral people and he started to cry. And he said, no, I can’t do that. I’m afraid to do that.”
The Gutman gambit had clearly backfired for the defense; it also put Marcus and Merrill Lynch in an unflattering light.
Faneuil was back working at the art gallery that afternoon when an excited Pickholz called him. “You won’t believe it! Gutman took the stand and corroborated everything you said! You did it!” Faneuil was pleased and felt vindicated. But what if he had lied on the stand, as he thought everyone wanted him to, and then Gutman had contradicted him? Where would they be now? He thought his lawyers and the prosecutors owed him an apology for trying to get him to change his story. (They maintain they were pressing him to test his memory, not to get him to change his story, and certainly not to lie.)
The star witness for the defense was Heidi DeLuca, Stewart’s personal accountant, who’d called Faneuil about messing up the tax-loss selling with the ImClone trade. DeLuca was the sole witness prepared to support Bacanovic’s and Stewart’s testimony that they had an oral agreement to sell ImClone if it dropped below $60 a share. She said she had discussed the agreement with both Bacanovic and Stewart. Moreover, she had a document to support the claim: a spreadsheet of Stewart’s positions she’d printed off the Internet, with the notation in her handwriting, “ImClone. $61.52. Wednesday, tender offer, not responding.”
The note referred to the fact that Bristol-Myers Squibb had made a tender offer for a minority stake in ImClone at $70 a share. The offer expired on October 31. Since ImClone traded below $70 at the time, shareholders had a clear incentive to tender their shares for an above-market price. Stewart tendered all 5,000 ImClone shares in her own account as well as all the shares in the company’s pension account. Bristol-Myers ended up buying just under 21.5 percent of those offered. Stewart and the pension fund got $70 a share for that percentage, and kept the rest. In late October, the pension fund sold all its remaining shares at $61 a share. Stewart kept the rest of hers. So the timing of DeLuca’s conversations and her notes were critical. If before October 31, they clearly related to the pension fund sales at $61, and the evidence was all but worthless from the defense perspective. If after November 1, they could only have applied to Stewart’s remaining shares in her personal account, which supported the notion that she had an agreement with Bacanovic to sell if they dropped below $60.
DeLuca emphasized this in her direct examination by Apfel:
Asked about her handwritten note “ImClone. $61.52, Wednesday,” she explained, “That would be November 7, 2001.”
“I believe November 8 would have been Wednesday, isn’t that right?”
“I don’t remember . . . I had called Peter the next day . . . I had asked him a couple of questions about tendering and about ImClone.”
“Can you tell the jury what he said on the subject of tendering ImClone shares?”
“He explained to me tendering 101, what tendering was all about. He told me that he felt ImClone was a dog, although he felt there was still a possibility that the ImClone market share price would surpass the $70 a share and that the stock was volatile . . . and that he felt he could set a floor price of $60 or $61, just in case the stock continued to fall, as like, a safeguard. . . . He said that he would speak to Martha Stewart personally about it.”
Later, in January, DeLuca said she was with Stewart in the Connecticut TV studio. DeLuca knocked on Stewart’s door and went in; Stewart was on the phone. DeLuca was about to leave when Stewart asked, “What do you remember about ImClone?”
“What did you say in response?” Apfel asked.
“I said, I remember we sold shares out of the pension. I remember that she had tendered all her shares out of her personal account, and I remember Peter wanting to talk to her about setting some kind of a bottom price, $60 or $61, in ImClone to try to sell it . . . That was it.”
Finally, the testimony that Bacanovic and Stewart must have been longing for: something to corroborate their alibis. Stewart and Bacanovic had discussed selling ImClone at $60 or $61 on November 7 or 8. True, the date didn’t coincide with either Bacanovic’s or Stewart’s testimony, but that seemed a minor issue. Surely it would at least establish a reasonable doubt in the jurors’ minds.
On cross-examination, Schachter immediately focused on the date. Referring to the computer-generated spreadsheet and her notes, he asked, “There is nothing on this document itself which contains the date November 8, 2001, is that right?”
“That’s correct.”
“Isn’t it true, Ms. DeLuca, that you could be mistaken about that date?”
“No.”
“Isn’t it true, Ms. DeLuca, that these are notes of a conversation that you had with Peter Bacanovic on October 24 about selling the 51,800 shares from the pension account at $61?”
“No.”
“And isn’t it true that this note has nothing to do with setting a floor of ImClone at $61 or $60 for any future sales?”
“I don’t understand the question.”
And then Schachter pulled off the greatest coup in his career as a prosecutor : He produced the original of the spreadsheet with DeLuca’s handwritten notes rather than the copy she and her lawyers had been using. DeLuca acknowledged that this was the original.
Perhaps sensing what was coming, Apfel frantically objected.
“Overruled,” the judge firmly replied. “The witness testified this is the original of the document that you offered in evidence.”
“Looking at the lower-right-hand corner of the original document, do you see a date which is printed on this document?”
“Yes.”
“What is that date?”
“October 24, 2001.”
“And, Ms. DeLuca, October 24, 2001, that was a Wednesday, was it not?”
The defense lawyers had apparently failed to examine the original document, which contained a date reference that is routinely included on a computer-generated printout. Either it didn’t register on the copy or, more likely, it was located off the edge of what was copied. Phone records also showed that DeLuca spoke to Bacanovic for twenty-one minutes on October 24. The discussion of selling ImClone at $60 or $61 could not have happened on November 7 or 8.
DeLuca’s credibility lay in shreds. Suddenly the facts fell into place. Bacanovic
had
discussed selling ImClone if it fell to $60 or perhaps $61–but the conversation occurred in October, and it was about the pension shares–not Stewart’s personal shares, the ones she sold on December 27. Like many lies, embedded in the $60 stop-loss-order story, the linchpin of the defense, was a kernel of truth.
had
discussed selling ImClone if it fell to $60 or perhaps $61–but the conversation occurred in October, and it was about the pension shares–not Stewart’s personal shares, the ones she sold on December 27. Like many lies, embedded in the $60 stop-loss-order story, the linchpin of the defense, was a kernel of truth.
Schachter proceeded to further undermine DeLuca’s integrity. Although 70 percent of her work was personal work for Martha Stewart, the company paid her entire salary. Moreover, “You submitted an expense report to the company charging Martha Stewart Living Omnimedia for the cost of this vacation [to Mexico], did you not?”
“Based on the information that I was given, as a business expense, yes.”
“Now, Ms. DeLuca, even though this vacation was billed as a business expense, you called Mariana Pasternak and asked her to put in her share for the cost of the vacation, isn’t that right?”
“I don’t recall.”
The judge jumped in. “Whatever you are asked to do, you do, regardless of whether it is true or not true?”
“Correct. I am given information. I submit it. Somebody else is the one who reviews it and would reject or accept.”
“Let’s move on,” the judge concluded, getting DeLuca off the hook. Still, Schachter had established that DeLuca was only too willing to submit a questionable expense report on Stewart’s behalf. (DeLuca’s lawyer, David Fein, didn’t respond to requests for comment.)
There was little the defense lawyers could do to rehabilitate her. Called to support the Stewart-Bacanovic cover story, she had instead discredited it even further.
The defense called no further witnesses.
T
he entire defense case had lasted less than three days. Neither Stewart nor Bacanovic testified, which was their constitutional right. The jury was instructed to draw no negative inferences from their failure to take the stand. The burden was on the government to prove its case, not the defense to disprove it. Of course, had they taken the stand, they would have been obliged to tell the truth or risk compounding their predicament with further allegations of perjury.
he entire defense case had lasted less than three days. Neither Stewart nor Bacanovic testified, which was their constitutional right. The jury was instructed to draw no negative inferences from their failure to take the stand. The burden was on the government to prove its case, not the defense to disprove it. Of course, had they taken the stand, they would have been obliged to tell the truth or risk compounding their predicament with further allegations of perjury.
Seymour was the lead prosecutor, but she stepped aside so that Schachter could deliver the government’s closing argument. Schachter had been immersed in the facts of the case for over three years. In contrast to the often-interrupted and sometimes disjointed testimony and exhibits, he was able to provide a coherent narrative, one in clear chronological order, with cause and effect and motivations artfully woven together.
“On the afternoon of February 4, 2002, as Martha Stewart walked up the steps to the United States Attorney’s office, she had firmly fixed in her mind two things. One was that she was going to tell the FBI and the SEC that before selling her ImClone stock she had not spoken to Sam Waksal. And he had not tipped her that the FDA was rejecting ImClone’s drug application. Martha Stewart knew she could say that with defendants because it was true, and telephone and other records would back that up.
“The other thing fixed in Martha Stewart’s mind was that she would conceal from the FBI and the SEC the true reason for her sale: that she had sold her ImClone shares because she had been tipped off by Doug Faneuil, that Sam Waksal and members of his family were dumping their ImClone stock on the eve of an expected critical announcement from the FDA.
“Martha Stewart would lie about this. And Martha Stewart probably thought that she would never get caught. She knew she could count on Peter Bacanovic to tell investigators the same story. But Martha Stewart and Peter Bacanovic were wrong. Because as they attempted to obstruct the SEC and FBI investigations they made a series of mistakes and they left behind a trail of evidence that exposed the truth about Martha Stewart’s sale and exposed the lies that they would tell, mistakes like leaving a trail of evidence of e-mails and phone records, mistakes like Martha Stewart’s admissions to her friend, Mariana Pasternak, mistakes like Martha Stewart’s message for Sam Waksal that she left immediately after getting off the phone with Doug Faneuil, Martha Stewart’s effort to tamper with a critical piece of evidence, and Peter Bacanovic’s fabrication of another–evidence just like the documents that completely undermine the story that Heidi DeLuca told you and, most importantly, the evidence provided by Douglas Faneuil from that witness chair.
“Those mistakes and that evidence conclusively prove, ladies and gentlemen, that Martha Stewart and Peter Bacanovic are guilty of the crimes of obstructing an SEC investigation, making false statements to federal agents, and conspiracy. And Peter Bacanovic is also guilty of the crimes of making a false document and perjury.”
Did Schachter really know what Martha Stewart was thinking when she walked up the steps of the U.S. Attorney’s office? Perhaps not. But it was a plausible guess. So were other aspects of his summation. Why had Bacanovic first told Faneuil that Stewart’s sale was part of a tax-loss-selling plan, then change the story to the $60 stop-loss order? Because when confronted with Judy Monaghan’s unexpected questions to Faneuil on December 31 about the sale, Bacanovic said the first thing that popped into his mind. His last conversation with Stewart probably
had
been about tax-loss selling. But then Bacanovic must have realized that the explanation made no sense, because the ImClone sale was a gain–as DeLuca had complained to Faneuil after the trade. In fact, it had “screwed up” the tax-loss plan. Significantly, when asked by both Faneuil and Monaghan about the reasons for the sale, Schachter pointed out that Bacanovic said “nothing–nothing–about any $60 price agreement. Four days after the sale Peter Bacanovic didn’t say a word about what is now the cornerstone of his defense.”
had
been about tax-loss selling. But then Bacanovic must have realized that the explanation made no sense, because the ImClone sale was a gain–as DeLuca had complained to Faneuil after the trade. In fact, it had “screwed up” the tax-loss plan. Significantly, when asked by both Faneuil and Monaghan about the reasons for the sale, Schachter pointed out that Bacanovic said “nothing–nothing–about any $60 price agreement. Four days after the sale Peter Bacanovic didn’t say a word about what is now the cornerstone of his defense.”
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