Tangled Webs (8 page)
Authors: James B. Stewart
Tags: #History, #United States, #General, #Law, #Ethics & Professional Responsibility
J
ohn Cuti was startled by the call. He told Stewart, “Don’t touch anything.” He immediately called Savarese and left a message. Then he called Armstrong. “Don’t touch anything. Just stop in your tracks.”
ohn Cuti was startled by the call. He told Stewart, “Don’t touch anything.” He immediately called Savarese and left a message. Then he called Armstrong. “Don’t touch anything. Just stop in your tracks.”
“I’m glad to hear from you,” Armstrong said. She’d become friendly with Cuti from his many calls to Stewart’s office. Though she had simply followed Stewart’s orders and hadn’t erased the message herself, Armstrong was nervous that she was getting enmeshed in something that might be illegal. That Stewart had enlisted Armstrong in altering the message suggested that Stewart herself thought she’d done something wrong. Why else would she tamper with potential evidence? Cuti suggested to Armstrong that they meet for dinner that evening at a restaurant in Greenwich Village.
Stewart left the office for a hair appointment, and afterward was flying to Germany for the weekend. As soon as she got into her car, she called Armstrong. “Were you able to get it back?” she asked, obviously referring to the phone message.
“No, but I’ll keep trying.”
Stewart was silent.
Later, at the restaurant, Cuti tried to reassure Armstrong. He told her he had a call in to Savarese, that they’d find a way to retrieve the message, and that she shouldn’t worry. Armstrong found his advice and demeanor comforting, but still, when she got home that night, she wrote everything that had happened that day in a notebook.
The following week, Armstrong enlisted a young writer for the magazine and together they examined the trash folder on her computer. It turned out that the computer had crashed on January 4, and Stewart’s message log had been open on the screen at the time. It was automatically saved in the trash folder, and it included the message from Bacanovic before it was altered. Armstrong immediately made copies. She faxed one to Stewart’s lawyers at Wachtell. Just to be safe, she put another in an envelope, sealed it, and placed it in a locker down the hall from Stewart’s office. “I hope we never need this,” Armstrong said.
M
artha Stewart arrived at the Manhattan U.S. Attorney’s office in lower Manhattan on Monday afternoon. She was accompanied by two of her lawyers from Wachtell, John Savarese and Steven Pearl.
artha Stewart arrived at the Manhattan U.S. Attorney’s office in lower Manhattan on Monday afternoon. She was accompanied by two of her lawyers from Wachtell, John Savarese and Steven Pearl.
Michael Schachter represented the Justice Department and did the questioning. Also present were the SEC lawyers Helene Glotzer and Jill Slansky, as well as an FBI agent, Catherine Farmer, who took notes. In keeping with standard policy of the Department of Justice, this voluntary interview–one that, unlike Bacanovic’s, had not been compelled by subpoena–was not recorded and Stewart wasn’t sworn to tell the truth. Still, Schachter began by reminding her that she was obliged to tell the truth and that making a false statement to law enforcement officials is a crime. She was free to consult her lawyers at any point and the government wouldn’t draw any inference if she did so. She was also free to end the interview at any time. Stewart nodded in agreement.
Initially, the questions seemed innocuous. Stewart described her investment approach, her fondness for biotech and technology stocks, and ImClone in particular. She’d met Sam Waksal through her daughter and they’d become friendly, with houses near each other in East Hampton. She attended the wedding of one of his daughters, and met other family members, including his brother Harlan. She liked ImClone’s prospects, especially because at one point it was researching a cure for AIDS, and she first bought the stock in the mid-1990s when it was selling for about 60 cents a share.
Though Stewart saw Waksal socially and the two spoke two to three times a month, he didn’t tell her anything specific about ImClone, Stewart said. Although he was often optimistic about the company and its prospects, he didn’t tell her when Bristol-Myers Squibb was going to launch a tender offer for a stake in the company, and hadn’t told her anything about the status of its Erbitux application.
And then the questions became specific. Schachter asked her what, if any, conversations about ImClone she’d had with Bacanovic. According to Helene Glotzer’s sworn recollection of what Stewart said, “They decided that if ImClone stock fell below $60 a share, she would sell the remaining stock out of her personal account. She said that Mr. Bacanovic believed that at that point she had made a profit, and she should just take the money and run.”
Stewart recalled that on the day of the sale, en route to Mexico, “she called in to her assistant, Ann Armstrong, for her messages. Ms. Armstrong told Ms. Stewart at this point that Mr. Bacanovic had left a message and wanted to speak to her hopefully before the end of the day, and she asked to be patched through to his offices. And when she was put through to him, he told her that the price of ImClone had fallen to $60, and she at that point told him to sell all of her shares.”
According to Farmer’s notes, Schachter asked if there was a written record of the message that Bacanovic had left for her. A Wachtell Lipton memorandum, however, written by Steven Pearl, an associate who took notes at the interview, reads: “AUSA: at what time had PB [Bacanovic] left a message for MS [Stewart] to call him on December 27? MS: does not know. JFS [Savarese]: Agrees to send them the phone log.”
“She said she didn’t know,” Farmer’s notes continued. “I believe at that point her attorney offered to check and get back to us with that message, if one existed.”
Schachter asked why she sold then.
“She was on her way to vacation. She didn’t want to be bothered over her vacation with it. . . . She said that they also briefly discussed Martha Stewart Living’s stock price as well as Kmart.”
At this point Glotzer herself asked Stewart if she was sure she spoke to Bacanovic and placed the order through him that day. After all, Doug Faneuil had already told the SEC lawyers that it was he, not Bacanovic, who spoke to Stewart. Glotzer mentioned Faneuil by name and asked Stewart if she was sure she didn’t speak to him.
According to Glotzer, “She said she spoke with Mr. Bacanovic and didn’t recall who his assistant was then.” Stewart added that “she doesn’t trade on information she’s not supposed to know about.”
Stewart continued that at the party in Panama, after news of Erbitux’s rejection was public, Waksal explained what had happened with the ImClone application, mentioning “someone at ImClone had botched up with the filing with the FDA. It would take them about six to eight weeks to refile the application, but that, you know, he was very optimistic that everything with the drug trials was going very well.” Otherwise, she said, she didn’t discuss the matter with Waksal, and he didn’t say anything about trying to sell his shares.
When Schachter asked Stewart about any conversations with Bacanovic between the time of the sale and the interview, she recalled that they spoke just “two or three times.” In only one of those conversations, which took place on the phone, was ImClone mentioned, she said. “Mr. Bacanovic had told her that the SEC was asking Merrill Lynch some questions about trading in ImClone,” but he “didn’t tell her whether he had been asked any questions or whether any of the questions involved her at all.”
Stewart also volunteered that she’d discussed the ImClone trade with her bookkeeper Heidi DeLuca, who also remembered that Stewart had an agreement with Bacanovic to sell ImClone at $60. “All three of them–Mr. Bacanovic, Ms. DeLuca and Ms. Stewart–all had the same recollection,” Stewart said.
But how could she know Bacanovic’s recollection if she’d only had one conversation with him–one that didn’t mention her trading?
Schachter pounced on the inconsistency, and Stewart hastily tried to recover. “Well, I don’t know what his recollection is. I only know that my bookkeeper and I have the same recollection.”
The obvious gaffe seemed to put Stewart on edge. “Can I go now?” she testily asked. “I have a business to run.” Shortly after, she ended the interview. She and her lawyers left the room, the atmosphere strained.
T
he government lawyers were baffled by Stewart’s performance. On the one hand, she didn’t say anything incriminating. Her story was consistent with their phone interview with Bacanovic; she knew nothing about the FDA’s decision on Erbitux and had sold because the stock dropped below a prearranged target of $60. And yet her story suffered from the same weaknesses. There was no stop-loss order, and Stewart had been unable to recall even one other instance where she’d made such an arrangement to sell a stock. She had sold her entire position the day before a major public announcement, which remained highly suspicious. And then there were the curious inconsistencies: the lawyers knew that it was Faneuil, not Bacanovic, who took the order and spoke to Stewart that day. But when pressed on the issue, Stewart insisted she’d spoken to Bacanovic and didn’t even know Faneuil’s name. Why would she lie about Faneuil? Moreover, too much of her story was self-serving: the convenient alibi from the bookkeeper; the claim that she would “never” trade on improper information. And then there was her gaffe about Bacanovic supporting her story, when allegedly she’d never discussed the investigation with him. As she was represented by some of the finest lawyers in the country, it was little short of incredible.
he government lawyers were baffled by Stewart’s performance. On the one hand, she didn’t say anything incriminating. Her story was consistent with their phone interview with Bacanovic; she knew nothing about the FDA’s decision on Erbitux and had sold because the stock dropped below a prearranged target of $60. And yet her story suffered from the same weaknesses. There was no stop-loss order, and Stewart had been unable to recall even one other instance where she’d made such an arrangement to sell a stock. She had sold her entire position the day before a major public announcement, which remained highly suspicious. And then there were the curious inconsistencies: the lawyers knew that it was Faneuil, not Bacanovic, who took the order and spoke to Stewart that day. But when pressed on the issue, Stewart insisted she’d spoken to Bacanovic and didn’t even know Faneuil’s name. Why would she lie about Faneuil? Moreover, too much of her story was self-serving: the convenient alibi from the bookkeeper; the claim that she would “never” trade on improper information. And then there was her gaffe about Bacanovic supporting her story, when allegedly she’d never discussed the investigation with him. As she was represented by some of the finest lawyers in the country, it was little short of incredible.
Given Stewart’s performance, Schachter thought it essential that they question Bacanovic again–as soon as possible, and this time under oath. At four-thirty that afternoon, the SEC issued a subpoena calling for Bacanovic to appear on February 6, just two days later. Merrill’s lawyers managed to put it off a week.
P
eter Bacanovic arrived at the Woolworth Building’s ornate, vaulted lobby on February 13, 2002. He was dressed in an expensive, well-tailored dark suit, white shirt, and tie. His thick hair was carefully groomed. He had the polished, affluent look of the successful Manhattan stockbroker he was.
eter Bacanovic arrived at the Woolworth Building’s ornate, vaulted lobby on February 13, 2002. He was dressed in an expensive, well-tailored dark suit, white shirt, and tie. His thick hair was carefully groomed. He had the polished, affluent look of the successful Manhattan stockbroker he was.
Bacanovic was accompanied by Marcus, the Merrill Lynch lawyer. The two took the elevator to the sixteenth floor, which was serving as the temporary offices in New York for the Securities and Exchange Commission.
Bacanovic and Marcus were shown to room 16042, where they were greeted by three SEC lawyers: Glotzer, Slansky, who’d earlier interviewed Bacanovic on the phone, and Laurent Sacharoff, a young lawyer in the office.
“Do you promise to tell the truth, the whole truth, and nothing but the truth?” Slansky asked him.
“I do,” Bacanovic replied.
Jill Slansky began the questioning for the SEC.
“Let’s go to December 27,” she said. “Let’s start when you woke up that morning . . . as much as you can recall the specifics of conversations with Aliza Waksal, Alan Goldberg [Waksal’s accountant], Sam Waksal, Martha Stewart, Doug Faneuil, and anyone else who was attempting to sell ImClone stock on that day.”
Bacanovic was poised and exuded self-confidence. He hadn’t traded any ImClone shares for himself and wasn’t even in the office that day. “Starting at the beginning of the day, I received a phone call from my assistant [Doug Faneuil] in the morning, and . . . he had received a phone call from Alan Goldberg, the accountant of the Waksal family, and the nature of the phone call was, as described by my assistant, that we were to expect additional phone calls from members of the Waksal family, most importantly, Aliza Waksal had an intention to sell all the shares in her account, and Sam Waksal would like to transfer shares from his account to her account. . . . I was on holiday in Florida . . . at a borrowed apartment in Miami Beach, where I had been staying.
“At that point I asked [Doug], I wanted to make sure that’s what he was saying. And I said, ‘I would like to speak to Alan Goldberg myself to understand exactly what this is about.’ . . . I believe I spoke with Alan Goldberg that morning . . . to just confirm what he had said. And that was that . . . Doug had only been in my employ about six months, and I was away, and this was a large transaction, and [I] also wanted to make sure that he knew what to do in such a case. . . .
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