Corporate Scandals

Faneuil Scraped Off Floor; Ann Turns On Waterworks

Flinty judge moved to tears as Stewart amanuensis weeps bitterly

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These are Elizabeth Koch's notes on the Martha Stewart trial.

It's clear from the get-go that Stewart lawyer Robert Morvillo is not going to engage in Apfel's belligerent bulldog tactic. He's polite and patient and calm, putting him on immediate good terms with both Cedarbaum and the jury. In fact, even when Cedarbaum and Morvillo spar, it's more for laughs than serious. Morvillo asks Faneuil a question he refuses to answer directly, a response style that's now Faneuil's trademark:

"You were never threatened or asked to lie by Martha, were you?"

"Well, she got angry when I asked whether I should send Ann Armstrong info about her Imclone trade."

"Does that answer my question?"

"Well, no."

"But you decided to mention it anyway."

"Is that a question, Mr. Morvillo? Try to stick to questions," Cedarbaum interrupts with a snicker.

Spectators laugh, the jury laughs, and Faneuil looks panic-stricken. The jokes are everything, or almost everything: The jury looks curious, open-minded, and attentive. All of them.

Morvillo's next line of questioning is brilliant. He's sharp and focused and takes things one step at a time so no one's confused. He asks Faneuil a serious of questions that he answered definitively in his testimony to Merril Lynch and the SEC but now cannot answer. When he tries, his answers contradict what he said earlier.

"How many times did you speak to Goldberg (Waksal's money man) on Dec 27?"

"Did you speak to any of Bacanovic's client's besides Ms. Stewart on Dec 27?"

"Do you recall telling the SEC that you weren't sure whether the day Martha yelled at you about keeping her stock info private was on Dec 27 or before?"

"Do you remember claiming you didn't overhear Alanna Waksal's conversation with her husband?"

Don't remember, don't remember, no, these documents don't refresh my recollection.

Miraculously, however, he remembers every word of his exchange with Martha.

"So you remember not only every word, but the exact sequence of events in the conversation?"

"Yes."

He reiterates the question half a dozen ways, almost tempting Faneuil to modify. Faneuil never does. Seymour objects, Cedarbaum sustains. "You've made your point, Mr. Movillo." Even the jury's skeptics raise their eyebrows. Some look visibly shocked. Others tap their lips and wrinkled their nose. Everyone looks reasonably doubtful.

Morvillo then grills Faneuil on why, if he had menacing gut feelings about Bac's orders as well as the type of trades the Waksal family was engaging in, why why why did he not tell anyone? "So you realized in early July that your boss's tax-loss selling story was impossible? Why wouldn't you have told him his cover story has as many holes as swiss cheese?" Faneuil hems and haws and attempts to qualify while everyone laughs, while several jury members nod. He alleges he wasn't thinking clearly, that he wasn't sure what the rules were, that he looked to his boss to tell him right from wrong, that it wasn't his responsibility to warn or reprimand clients, that he wasn't thinking about the compliance manual, and so on. His voice breaks when he talks about being scared of Bacanovic, of having to lie for him, of Bac. one day getting busted, "As soon as I realized what Bacanovic was asking of me, as soon as I saw what a lie the tax-loss story was, I feared this moment. The thing I've always been most scared of was this moment, right now, being up here on the stand in a position of having to tell the truth when Peter was lying." I truly believe he's going to cry. But he doesn't.

An obvious question comes to mind, one that Morvillo alludes to but unfortunately did not ask, is:

So you were perfectly comfortable representing yourself as a legitimate broker, encouraging clients to use you as their go-to man, but not comfortable taking responsibility for consequences of those actions?

Instead, Morvillo asks two related questions:

1) "So you felt guilty giving Martha the ImClone info, but your boss told you to do it so you did—putting the ball in his court, right?"

"Right," Faneuil admits, I think before he realizes it.

2) "Were you attempting to induce Ms. Stewart to trade by giving her the info?"

"That's fair to say."

Prosecution and Cedarbaum hardly interrupt Morvillo at all. The entire courtroom seems mesmerized, like, "Oh my god, the defense may actually have something on this guy." The jury appears fascinated. Even # 10 and 11 are taking notes—for the first time, I'm fairly certain.

Morvillo does a fantastic job nailing Faneuil on his "recollection issues." He asks F. about the May/June '02 publicity that suggested Martha and Bac were guilty of insider trading, how many times he met with prosecution to prepare for his testimony, about the numerous occasions on which he contradicted his SEC testimony. "So is this one of those times when your recollection is better now than it was in June?"

No response.

"Are you not interested in this line of questioning, Mr. Faneuil?" Quite the understatement—Faneuil is fidgeting and looking rather green. Jury looks at him warily, a few with some pity.

The dynamic here feels like that of a chess game: Morvillo moves, Faneuil ponders for a substantial period of time, makes his move, Morvillo pounces—both are clearly thinking four steps ahead. Apfel's tactic, on the other hand, was to lob tennis balls at Faneuil's head and swat haphazardly at Faneuil's perfect returns.

When Morvillo asks him about his plea bargain, about why it took so long for Faneuil to come forward to the SEC, he essentially blames it on Gutman. "He told me to not lie but to stick to my story."

Morvillo: "So in March during your Merrill Lynch interviews, you were dividing up the lies."

Faneuil: "Well, I tried to follow Gutman's advice. I hid the reasons behind the Stewart sale but did not repeat Peter's $60 stop-loss story."

Morvillo: "So you told old lies but didn't introduce any new ones."

"Sure," he finally confesses. "Gutman told me ML had a deal with the SEC to stop going after Martha if they turned over the Waksals."

Morvillo, "…So you inferred that they'd drop the case and you'd get away with your lies."

"Yes"

Morvillo asks Faneuil a series of questions on why he didn't ever tell anyone at ML about his bad feeling about the insider trades. "I felt ML suspected something but didn't really want to know what was going on, mostly based off the fact that Judy and Peter were offering me rewards."

"So you believe Judy was bribing you?"

Now he won't say. Jury looks confused at best.

Finally Morvillo asks Faneuil if he's aware that the crimes he committed are felonies—conspiracy, lying to the SEC, obstructing justice, drug use, and so on. "I count five or six crimes that are being washed away because of your testimony,"

Seymour objects, Cedarbaum overrules.

Morvillo: "It is fair to say that in place of all these crimes, you have pleaded guilty to a single misdemeaner charge?"

"That is correct."

Seymour redirects and accomplishes nothing.

Thomas Reese, a Merrill Lynch financial advisor, takes the stand for less than five minutes. Apparently he let Faneuil borrow his cell on Jan 3, but he doesn't remember lending it to him. Prosecution's aim is to show that Faneuil was acting like a guilty person right off the bat.

Armstrong weeps for Martha

The final witness of the day was Ann Armstrong, Martha's personal assistant since '98.

The tables have turned, in terms of Cedarbaum's favorites, anyhow. Where she was jokey and affable with Morvillo, she barked at prosecutor Michael Schachter throughout direct. "You cannot comment on evidence I have not ruled on, Mr. Schachter," she says when he questions Ann about records of Martha and Waskal's various interactions. When he tries yet again, several jury members look shocked.

As for Ann, by the sound of her high-pitched, mellifluous voice, I assumed she was in her mid-twenties. When Schachter moved away from the podium, I was surprised to see a dumpy woman in her mid forties with a wispy, dark brown bob and pasty skin. She waves her hands around as if shooing gnats. She giggles and rolls her eyes, lobbing her head from side to side with such force I fear she'll sprain something. The jury seems entertained by her antics and bored by her testimony. When Schachter lingers on seemingly off-the-track questions like, "What's the nature of Martha's relationship with Kevin Sharky (her style editor), Morvillo objects:

"I don't understand the relevance."

"I don't understand the question," Cedarbaum agrees. Yes, the tables have turned.

Finally Schachter gets to the point: He asks a series of questions about December 27, 2001. Ann says Peter called in the a.m. and asked Ann to put him through to Martha. When she told him she'd be touching down in a matter of minutes and would contact him then, Ann typed in the following now famous message: "Peter Bacanovic thinks ImClone is going to start trading downward."

Schachter asks a dozen questions about Ann's note-taking habits, inciting a colorful display of fluttering hand choreography from Ms. Armstrong. Her voice swings and the judge has to remind her repeatedly to answer in words rather than grunts: "You have to actually say yes so Mr. Recorder has something to type in." Ann is endearingly goofy and somewhat spacey, but she's having a hard time with clarity. Cedarbaum blames Schachter: "What's next," Cedarbaum interrupts.

Schachter asks what Ann and Martha discussed when she called the office after touching down. "Lot's of things," Ann says. "She'd made me plum pudding and.[something garbled]" Ann suddenly begins sobbing so grievously she cannot speak. The male members of the jury widen their eyes; a few woman gasp and cover their mouths. The judge is very kind and asks Ann if she needs a moment—she actually looks extremely sympathetic. Almost moved. Schachter appears incredibly confused (is this guy human?) and attempts to proceed with his questioning. Seymour whips around in horror and shakes her head at her partner.

"Uh, should we…" he says.

They take a sidebar. As Martha's attorney's stand, they pat her shoulder and whisper consolations of some sort. She blows her nose and wipes her eyes. After sidebar Schachter resumes his questioning. Ann starts crying all over again. The judge wipes her eyes (tears? dust?). Court is dismissed.

Finally, a humanizing moment for Martha. She obviously means a great deal to Ann, and Ann to her. Jury leaves looking very touched, very moved. This was certainly Martha's day.