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CNN BREAKING NEWS

Faneuil: Stewart Knew Waksal Was Selling Shares

Aired February 4, 2004 - 11:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

DARYN KAGAN, CNN ANCHOR: We turn up first this hour to New York and Martha Stewart's defense team is waiting in the wings to cross- examine the prosecution's star witness.
Our Mary Snow is at the federal courthouse in Manhattan now with the latest -- Mary.

MARY SNOW, CNN CORRESPONDENT: Well, Daryn, some dramatic testimony just moments ago from Doug Faneuil, the government's star witness, testifying about the phone conversation he had with Martha Stewart the day of December 27, 2001, the day she sold her ImClone shares.

She said, Martha Stewart had called the office. Doug Faneuil was Peter Bacanovic's assistant. And she asked him what was going on and Doug Faneuil said -- he testified that he said that he had no information on the company yet, but he said Peter -- meaning Peter Bacanovic, his boss -- thought you might like to act on the information that Sam is selling his shares. This is his testimony this morning.

He then said that Martha Stewart asked, "All of his shares?"

And Doug Faneuil said that he responded, "Well, the shares that he has here he is selling."

He then said that Martha Stewart questioned him about the price of ImClone. He said he couldn't remember the price he gave her, but he then quoted her as saying, "I want to sell all my shares."

Also, she asked if she had any ImClone stock in her pension account, because they had been talking about her personal account. And she was told no. He then said that she had been -- she had asked him about how she would find out about the order, the subsequent information. And Doug Faneuil suggested that he could get in touch with her assistant, Ann Armstrong, and let her know, because Martha Stewart was traveling to Mexico at the time. And he testified that Martha Stewart at that suggestion got, in his words, "extremely upset" for suggesting that. He quotes Martha Stewart as saying, "Absolutely not. You have no right to tell Ann Armstrong about my personal account."

And then he said that Martha Stewart suggested that he e-mail her personal account.

Testimony continuing and cross-examination. Before things got under way today, the defense attorneys want to ask Doug Faneuil about admitted drug use, admitted drug use of marijuana and Ecstasy. The judge is going to allow that line of questioning to be permitted. However, she wants to know the questions and the lawyers in this case are going to have to submit some papers before those questions are asked in court -- Daryn.

KAGAN: And so he's going to be under oath. He's going to have -- I guess apparently have to admit that he has been a drug user. Also, Doug Faneuil's very first statement when he got on the stand was talking about how he lied about covering it up.

SNOW: That's right.

KAGAN: So when your first statement is, "I'm a liar," what does that do to your credibility?

SNOW: Right. Exactly. But, and, you know, Doug Faneuil is campaigning with the government. He pled guilty to a misdemeanor and admit in court yesterday that the maximum sentence he faces is a year in prison. He also faces a potential fine because of that lie and the cover-up that he admitted.

KAGAN: Mary Snow...

SNOW: And that's certainly going to...

KAGAN: Snow...

SNOW: No, I was going to say that's certainly something that the defense is going to zero in on when they try to attack his credibility.

KAGAN: The rest of the day proves to be very interesting inside that Manhattan courtroom.

Thank you very much for that, Mary Snow.

Well, the defense appears to be banking on a star struck liar strategy, pinning Doug Faneuil as this baby-faced assistant to the jury, should not put much stock in it.

Let's talk about the Stewart case with Kendall Coffey, a former federal prosecutor and frequent CNN guest.

He is in Miami this morning -- Kendall, good morning.

KENDALL COFFEY, CNN LEGAL ANALYST: Hey, good morning, Daryn.

KAGAN: I'm sure you heard what Mary Snow just reported of Doug Faneuil going on the stand and what he had to say about Martha Stewart.

Just how damaging is that?

COFFEY: Well, it's damaging, although predictable. But what intrigues me is the latitude the judge is apparently going to give during the cross-examination. A lot of times you wouldn't expect something like somebody's drug use to really come in, since what does it really have to do with whether he's telling the truth about Martha Stewart? That's a pretty big victory for the defense.

And the other things you're talking about, such as the fact that he's an admitted liar, made a sweetheart deal with the government, could add up to some very blistering cross-examination, perhaps starting some time today.

KAGAN: I just have to challenge you here for a second, Kendall, when you say well, what could that possibly have to do with Martha Stewart. If the guy is a drug user, that makes him a law breaker, and perhaps -- we'll have to see where the questioning goes, but you have to see just what big of an impact his drug use would have.

COFFEY: It just depends on the judge's view. Obviously, the judge is apparently seeing it that way. But a lot of times things that are very harmful that really are not relevant to somebody's truthfulness are going to be kept out by a judge.

You have a similar issue, almost, with Kobe Bryant. Was the alleged accuser doing drugs at some point in her past? How is that relevant to the truthfulness of her statement? Kobe Bryant hasn't gotten a ruling on that, but apparently Martha Stewart got a good ruling and that could be very, very helpful to her in discrediting Douglas Faneuil.

KAGAN: And then on the flip side, the other thing that's interesting about today's testimony has to do with the concept that the cover-up is worse than the crime. She's not charged with insider trading, she's charged basically with the cover-up.

COFFEY: Very clearly, it's not what she did, but what she fibbed. And one of the things the prosecution is going to say in telling the jury why they should believe an admitted liar is, hey, the crime itself is lying. So whoever was participating in the fabrication is necessarily a fabricator. Just like it takes a thief to catch a thief, they're going to say that it takes a liar like Douglas Faneuil to catch two other liars such as Stewart and Peter Bacanovic.

KAGAN: Kendall, thanks for your insight.

We'll be tracking it from Manhattan, you from Miami.

Thank you so much.

COFFEY: Thanks, Daryn.

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DARYN KAGAN, CNN ANCHOR: We turn up first this hour to New York and Martha Stewart's defense team is waiting in the wings to cross- examine the prosecution's star witness.

Our Mary Snow is at the federal courthouse in Manhattan now with the latest -- Mary.

MARY SNOW, CNN CORRESPONDENT: Well, Daryn, some dramatic testimony just moments ago from Doug Faneuil, the government's star witness, testifying about the phone conversation he had with Martha Stewart the day of December 27, 2001, the day she sold her ImClone shares.

She said, Martha Stewart had called the office. Doug Faneuil>


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