Feds' star witness testifies against Martha. Douglas Faneuil says his broker boss told him to pass inside info to Stewart

By Gary Susman
Updated February 04, 2004 at 05:00 AM EST

After several days’ delay, the government finally brought out its star witness against Martha Stewart on Tuesday during her trial on federal obstruction of justice charges in New York. Douglas Faneuil, the former assistant to Stewart’s co-defendant, broker Peter Bacanovic, testified that Bacanovic tipped him to the fact that ImClone CEO Sam Waksal and his family were selling off their shares of the company on Dec. 27, 2001, and that Bacanovic had urged him to tell Stewart on that day, after which she also sold her shares.

Stewart and Bacanovic have maintained that she sold her nearly 4,000 shares that day because of a standing stop-loss order to sell if the share price dipped below $60, and that Stewart didn’t know (as Waksal did) that the price was about to plummet the next day because the government was about to reject ImClone’s new cancer drug. But Faneuil said that, while discussing the Waksal family’s selloff that day on the phone with Bacanovic (who was out of the office), the senior broker suddenly said: ”Oh my God, get Martha on the phone.” According to the Wall Street Journal, Faneuil said that Bacanovic said to him: ”You have to tell her what’s going on.” Faneuil says he asked Bacanovic if he was allowed to do so, and that the boss replied: ”Of course. You must. You’ve got to. That’s the whole point.”

Faneuil’s testimony came late in the day Tuesday, ending a delay imposed last week when defense lawyers complained that the prosecution had withheld until the 11th-hour documents that called into question Faneuil’s memory of the events of Dec. 27. Faneuil was expected to continue testifying, including offering his account of his phone conversation with Stewart — on Wednesday.