Corporate Scandals

Cold Case

Sleeping jury comes to as Morvillo pans Fanueil star turn

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

Richard Strassberg, defense attorney for Peter Bacanovic, ends his closing arguments by stressing motive: Douglas Faneuil only comes forward after the ImClone buzz at Merrill Lynch has seeped into the press: Faneuil can no longer hide from the fact that he's the shining center of the entire ImClone scandal. He's the one who performed the Merrill Lynch trades that landed Sam Waksal in jail; it's his statement that informed the SEC, compelling them to investigate further. No surprise that he's suddenly scared out of his mind, Strassberg says, now that it's clear whatever deal the government supposedly made with Merrill Lynch has vanished. Or erupted. Now would be the time to come forward, before he finds himself lying in criminal court. But of course, Strassberg stresses, lying on the stand is exactly what Faneuil has been doing. He has to. If he doesn't stick to the story he and the SEC agreed to, the deal's off. The government will trash the bogus misdemeanor bargain; and Sir Faneuil will not only be tried for a felony but face a brand new perjury charge.

The jury seems genuinely focused, but a few press people sigh loudly and roll their eyes. I frankly don't blame them. Strassberg may be dead-on in terms of content, but keeping his voice below a hysterical pitch would get him farther.

Strangely, when Strassberg arrives at his heart-jerking conclusion—one that might warrant a little drama—his voice drops to a kinder, more gentle timbre. "It's frightening that you could be fighting for your life over a pronoun," he says, referring to the mis-transcribed February 13 SEC meeting, the only meeting the government bothered to tape, which substituted "We" for "I" in Peter's statement that "We told Martha" ImClone was trading downward. "It's understandable that someone made a mistake, but a mistake should never be used to charge someone with a criminal offense." The jury box gasps and becomes still, as if the jurors have had the collective wind knocked out of them. When the pause breaks, heads rush toward notebooks.

"There's only one time for Peter Bacanovic. That time is now. He's a victim, caught in the crossfire about the events of a phone call he wasn't privy to, caught in the crossfire of the government's attempt to make a case against Martha Stewart. He made a mistake (letting Faneuil handle Martha's trade), but was not willing to take a deal that would wrongly implicate his friend. He's lost his reputation, his career, everything he spent over nine years building, and now his life and liberty are also on the line.

"You are here to prevent overreaching and the twisting of facts. I trust you will do just that."

Stewart defense counsel Robert Morvillo begins with his usual clarifying analogy: "The government has accused Martha Stewart of participating in a Confederacy of Dunces!" Heads jerk and eyes widen. "If two smart, successful people were to sit down to concoct a story, wouldn't they make sure to match them up? Wouldn't they have made at least certain aspects of it cohere? Look at the gaping inconsistencies! They fall down on the very first element of the case!"

He goes through a litany of discrepancies that surround the $60 arrangement and ultimate sale of ImClone stock—when they made the agreement, where they made it, who else knew about it, and when they were told. "They couldn't even get straight who took down the order and executed the transaction! What kind of conspiracy is this? It's a Conspiracy of Dunces!" The jury looks somewhere between amused and stunned.

Before launching into the conspiracy charge, Morvillo mentions something prosecuting attorney Karen Seymour said in her opening arguments: that the Waksals were "trying to sell every last ImClone share they held. That was an inaccurate statement," Morvillo asserts. "Sam Waksal only held 2 percent of his over three million shares at Merrill Lynch. Do I think Seymour's a liar? No, of course not. She made a mistake. Just like Martha made a mistake when she thought she was speaking to Peter instead of Faneuil, jut like Heidi thought she wrote the note on November 7 instead of in October."

With that hit, he confronts conspiracy—the government's argument that Peter and Martha met after December 27 to get their stories straight. Morvillo asserts there was plenty of non-ImClone related activity in Martha's account from January 7 to April 10, the period in which the SEC interviews were conducted, that demanded broker and client conversation. In the beginning of 2002, Martha sold a chunk of her Martha Stewart Living Omnimedia stock for $45 million. "This is not $450 we're talking about," Morvillo says, referring to the amount of commission Bacanovic made off Stewart's December 27 ImClone dump. "There's not a shred of evidence that anything going on in any of those conversations was improper or conspiratorial." As for Faneuil's word…

"Faneuil testified that when Peter returned from his January 16 breakfast meeting with Martha Stewart, he said, 'We're on the same page,' about the $60 agreement. They weren't on the same page, they weren't even in the same boat! To believe the government's story, you'd have to believe these two people got together to conspire and couldn't get it right."

Brian Schimpfhauser, a Merrill Lynch market surveillance officer, accuses Peter of sending Martha a signal that something was going on with ImClone. But why, Morvillo asks, would Stewart assume Peter's "signal that Waksal was selling stock in his company" meant something [awful]? She believed the FDA would pass Erbitux anytime soon. There are all sorts of reasons Sam could have been selling—to diversify, for immediate cash, because the price is trading downward—"how would Martha know Sam would go insane…that he would be dumb enough to sell right before a black-out period [right before the FDA denied approval of his wonder drug], when he knew he'd have to file within ten days? And that his sale would be scrutinized?" At least half the jury is taking notes, the other half lean towards Morvillo. Even sleepy Juror 11 is writing in her notebook.

About the same Feb 4 meeting, Morvillo later asks, "If there was any doubt about what was talked about in that meeting, why didn't the government subpoena David Marcus (Merrill Lynch's general counsel), Steve Snyder (head of Merrill Lynch market surveillance), or Jill Slansky (FBI agent who took notes)? Why'd they call on Brian Schimpfhauser, the rookie whose job is to stare at the computer, the one with the haziest recollection? Why not call in experts about what happened in [Faneuil's] January 3 statement or [Bacanovic's] January 7 phone interview?" Several jury members cock their heads simultaneously, as if thinking, "Hey, that's right! Why the hell didn't they?"

Morvillo nails the government for mishandling Stewart's interviews in general. The FBI did not tape or transcribe them, the SEC did not tell her she was under oath, and the participating agents did not read her the SEC rules of compliance. First, Morvillo argues, "How can you say whether Martha dodged questions or responded in full when no one bothered to record the questions? Not recording the interviews allows the government to go after you any way they want."

Assistant U.S. Attorney Michael Schachter objects.

Second of all, "How can you accuse Martha of even knowing these were legitimate SEC meetings? The real deal? They didn't hold the interviews in the SEC office, nor did an actual SEC officer conduct the interview—the assistant United States Attorney did. How can you accuse Martha of willfully obstructing justice and lying to officers of the law when they were conducted so informally? The questions themselves were misleading—the interviewer doesn't give Martha a chance to rethink her erroneous belief that she preformed the December 27 trade with Peter, but instead leads her down a misguided path, trapping her in her error and calling it a lie. They take shoddy notes, then use them to tie Martha's "I don't know" response to a question about whether a record existed of Peter's December 27th message ("ImClone is trading downward") rather than when the message was recorded."

Morvillo spends some time on Peter's "@ 60" document, the spreadsheet that lists Martha's 2001 most ailing stocks. He points to the circled Apple, Nokia, and ImClone stocks, and says, "Even the world's leading ink expert agrees" these marks were made with the same pen. "When Peter circled those stocks, he wasn't doodling. The only reason to circle the stocks was because there was something to do. They sold Apple and Nokia on December 24; there was one stock left to get rid of," one Martha wanted to hold onto both out of loyalty to her good friend Sam, which Mariana Pasternak testifies to, and because she still believed Erbitux would be approved.

Morvillo takes as many hits at Faneuil, whom he describes as the centerpiece of the government's case, saying that he told half-truths he told on the stand. Way too many to record. "Heidi Deluca, Martha's business manager, puts the nail in Faneuil's recollection. Faneuil claims Heidi called him in the beginning of January all mad that ImClone sold at a profit, which screws up Martha's 2001 tax-loss plan. But in January Heidi still believes ImClone belongs on the 2002 tax form. She doesn't ball him out until February, when she gets the 1099 from Merrill Lynch that demonstrates she was wrong.

"Peter had told Faneuil about the $60 agreement at least a month before Faneuil and Deluca's February conversation. But Faneuil testifies that it wasn't until Heidi alerted him to the big flaw in the tax-loss story—that it sold for a gain—that Bacanovic changed his story to the $60 agreement. In February? There had been multiple SEC interviews by that point. It could not have happened that way.

"Instead of giving you proof of anything, the government gives you Douglas Faneuil, the very definition of reasonable doubt."

Juror 1 looks up from her notes to smile.

Morvillo gets in one final dig. "When Faneuil was asked whether he was prepped for his testimony, he said yes, 'But they didn't ask me all these questions.'

"Tell us, you of the prodigious memory," Morvillo booms, "tell us one question they failed to ask you. One question you were surprised by on direct:

"'I can't remember.'"

Morvillo ends his statement by imploring the jury: "Let Martha Stewart return to her life and improve the quality of life for all of us. If you do that, it's a good thing."

Seymour's rebuttal is so slipshod it's almost not worth mentioning, not least because the jurors look absolutely fried. Many sit with folded arms and fidget throughout her comments, pleading with their eyes for her to just stop talking. Maybe she picks up the exhausted vibes, because she spends the first twenty minutes rambling absentmindedly: She says "actions speak louder than words" and "Morvillo can't read Faneuil's mind—you are the ones who must decide what Faneuil was thinking about." That advice should knock a day off deliberations.

She repeats the same stuff Schachter said in his closing, only simplified to the point of uselessness. "Faneuil did accept responsibility—he turned himself in!" she pleads. The jury just looks at her—no one's taking notes. "He accepts that he lied before, he admits it, he accepts responsibility. He even volunteered that he misrepresented his GPA on his resume, claiming 4.5 when in fact he had a 4.44."

It's all downhill from there, if you can imagine. "Faneuil was tired by day three up there on the stand. He'd been through a huge ordeal. He's not going to be totally consistent." Even worse, she attempts to rebut accusations that Faneuil exaggerated and twisted conversations to fit his needs by unintentionally calling him a good actor. "Remember how he represents his boss from the January 13 SEC tape—didn't his [imitation] sound just like Bacanovic?" It' probably doesn't work to Faneuil's advantage that he's a good impersonator.

She closes with another flub, the most telling one of all. "Morvillo suggests that Peter and Martha were too smart to make the mistakes they made. But white collar criminals are often bright and do really stupid things—perhaps the two were dismissive or arrogant about the investigation, perhaps they didn't take it seriously…" And perhaps the government was looking for an excuse to take down corporate America. For being too successful, and too damn proud.

Tomorrow Cedarbaum will read the jury her 70-page long list of instructions.

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