Witness: Boss Wanted Martha Tipped

The government's star witness against Martha Stewart testified Tuesday that Stewart's stockbroker ordered him to pass an ImClone Systems stock tip to the style maven just before she dumped her shares in the company.

Douglas Faneuil, a former assistant at Merrill Lynch & Co., took the stand and recounted that broker Peter Bacanovic made it clear he wanted the stock tip passed to Stewart by blurting: "Oh my God, get Martha on the phone."

The alleged tip: ImClone Systems founder Sam Waksal and his family were frantically trying to unload their shares of ImClone stock. Waksal later admitted he had illegal insider knowledge of coming bad news that would send the stock tumbling.

Faneuil, the government's star witness, told jurors of a hectic morning at Merrill on Dec. 27, 2001, with Waksal's accountant and Waksal's two daughters barking sell orders at him in just the first hour of the day.

When Faneuil told Bacanovic, on vacation in Florida, of the selling, Bacanovic tried to reach Stewart but could not, Faneuil testified. He said Bacanovic then told him to tell Stewart what was going on.

Faneuil said he asked Bacanovic if that meant directly telling Stewart that the Waksals were selling their shares. He said the broker answered: "Of course. You must. You've got to. That's the whole point."

Prosecutors are hitching their case on Faneuil, just 28, hoping they will believe the tip led Stewart and Bacanovic to tell a string of lies to prosecutors about why Stewart sold the stock.

Bacanovic and Stewart claim they had decided in the days before Dec. 27 to sell Stewart's 3,928 shares of ImClone when the stock fell to $60 per share. Stewart is also accused of deceiving her own investors about the investigation.

Faneuil was due back on the witness stand Wednesday morning to continue his story in an exchange with prosecutor Karen Patton Seymour. That was expected to include an assertion that Faneuil personally talked to Stewart later on Dec. 27, and sold her shares on orders from Stewart herself.

Sam Waksal, a former jet-setting New York socialite, is serving a seven-year prison sentence after admitting he instructed his family to sell ImClone shares when he got word the government was about to reject ImClone's new cancer drug.

On Dec. 27, daughter Aliza Waksal sold all her shares — placing the order through Faneuil. Waksal's accountant tried to order Faneuil to sell Sam Waksal's shares as well, but Faneuil said he told the accountant it would be against the rules.

Meanwhile, lawyers for Bacanovic and Stewart eagerly await their chance to cross-examine Faneuil, hoping they can punch holes in his credibility by painting him as a shady character and admitted liar.

"Prosecutors told jurors in opening statements that Faneuil is an "admitted criminal" so clearly they are not trying to hide the fact that he initially lied about the stock trade that generated this case. And the only way Faneuil can even hope to get some credibility with jurors is if he admits that he was lying when first questioned about all of this and then says he isn't lying now," says CBSNews.com Legal Analyst Andrew Cohen.

"It's going to be a long night for Faneuil, who will go to sleep, or maybe not go to sleep, wondering what the withering cross examination of him will feel like. Stewart's lawyers are going to try to portray him as a young kid who was in way over his head and Bacanovic's lawyers are going to try to portray him as someone who is still lying to save his own skin," says Cohen.

Faneuil had initially supported Bacanovic and Stewart's story, but changed his story in a 2002 plea deal with prosecutors.

Prosecutors sought to blunt that argument as soon as Faneuil took the stand Tuesday. Seymour asked him whether he had ever committed a crime.

"I told one client about what another client was doing in his account," Faneuil said, "and then lied about it to cover it up."

Defense lawyers are also hoping the judge will allow them to question Faneuil about past drug use, and Bacanovic's attorney has suggested he will argue Faneuil himself decided — without Bacanovic's approval — to tip Stewart.

Even before Faneuil took the stand Tuesday, Bacanovic attorney Richard Strassberg got a Merrill administrator to admit she had once admonished Faneuil for cursing in his company e-mail and using it for personal messages.

Faneuil's testimony was delayed by five days after the judge penalized prosecutors for being too slow in turning over an FBI document that defense attorneys say raises questions about Faneuil's credibility.

Stewart faces five counts in a federal indictment, carrying a potential prison term of 30 years. Bacanovic faces five years carrying 25 years. Both would likely get lighter sentences under federal guidelines if convicted.