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The Martha Stewart Scandal: A Tempest in a Cuisinart...
Martha Stewart on trialWHO: The principal players in the Martha Stewart trial

By Andrew Ritchie and John Small

Martha Stewart
Peter Bacanovic: The broker
Douglas Faneuil: The star witness/assistant
Sam Waksal: The ImClone founder

The attorneys:
Robert Morvillo
John J. Tigue

The Prosecutors:
James B. Comey

Karen Patton Seymour

The Judge
Hon. Miriam Cedarbaum: The Judge

Martha Stewart

"I do what I please, and I do it with ease"
- Martha Stewart, from her high school yearbook

Martha Kostyra was born in 1941 to Polish Catholic parents and was raised in Nutley, New Jersey, in a working class environment. The oldest daughter of six children, Martha quickly learned the trades of the domestic arts and made her own clothes, cooked meals, gardened and helped her mother with household duties like laundry and cleaning.

Her father was a pharmaceutical salesman and her mother was a teacher and homemaker. Martha credits both her parents as primary influences in both her life and her career.

Always a stellar academic, Martha attended Barnard College, where she studied business and art history. In order to help pay for school, she worked as a model in her late teens and early 20s for Bonwit Teller on Fifth Avenue and starred in television ads for Life Buoy Soap, Breck and Clairol. She was eventually chosen by Glamour Magazine as one of America’s 10 “Best Dressed College Girls.”  In 1961 she married Andy Stewart who was studying law at Yale. They had a daughter in 1965, Alexis.

Martha worked as a stockbroker on Wall Street between 1968 and 1973 at a firm called Perlberg, Monness, Williams and Sidel, where she achieved great success, making a six-figure salary at a time when women were still a rarity in the workforce.

Andy (then a practicing lawyer) and Martha eventually moved from New York to Westport, Connecticut, where they restored a dilapidated 1801 farmhouse on Turkey Hill Road to its former glory. The house, which has expanded to 4 acres, is known today, simply, as Turkey Hill and is where Martha has lived
ever since. The home has often been cited by Martha as the foundation of her creative inspiration and many of Martha’s books, articles and products have been based on the aesthetics and function of Turkey Hill, such as a line of paint colors and furniture.

In the 1970s Martha became a cateress, eventually becoming one of the most successful in New York City. By 1982 she had written her first book, “Entertaining,” which has been deemed an American classic by numerous critics. Dozens of books then followed, as well as weekly and monthly columns in some of the nation’s most respected publications, like the New York Times, House Beautiful and Family Circle.

Soon considered to be the main American authority on housekeeping and the domestic arts, she struck a lucrative deal with Kmart Corporation in 1987 to help the troubled discount retailer revamp its suffering kitchen, garden and housewares departments. She starred in the company’s television and print ads, which in turn helped to promote her own ventures. A “Martha Stewart” brand was eventually developed by Kmart and Martha, putting her name on the tags of sheets, towels, kitchen utensils and gardening tools.

In 1989 she and Andy Stewart divorced, and Andy later went on to marry Martha’s former assistant, Robyn Fairclough, in 1993.

The 90s proved to be a stunning decade for Martha. She launched her magazine, Martha Stewart Living, to shocking success in 1991 through Time Warner Inc. In 1993 she landed a syndicated TV show with Group W productions. The program, also called “Martha Stewart Living,” was eventually seen by 97% of the American population. Both ventures (magazine and TV) have won Martha critical and commercial acclaim with dozens of awards.

In 1997 she bought back her company, Martha Stewart Enterprises, from Time Warner for a paltry sum of $2 million, having brilliantly managed to pay for the remaining $85 million price tag with funds from Kmart and valuable stock.

She re-christened her company Martha Stewart Living Omnimedia Inc. and took it public in 1999 with stock selling for $38 a share, making Martha a billionaire over night. Her success has continued into the new millennium with business now underway in Canada and Japan.

Despite her monumental success, however, an undercurrent of spite directed at Martha has followed her, persistently, throughout her career. With rumors that she has a bad temper and an arrogant demeanor, Martha was often the butt of jokes and public vitriol. She was frequently lambasted by the press for being a perfectionist and two unauthorized (and unflattering) biographies have been written about her: “Martha Stewart: Just Desserts” and “Martha Inc.” both became bestsellers, filled with gossip and dark tales of Martha’s supposed arrogance and wicked temper.

Martha was charged on June 4th, 2003, with obstruction, making false statements and securities fraud in relation to an insider trading investigation. Her stock broker, Peter Bacanovic (see below) was simultaneously indicted on similar charges.

Martha resigned from her positions as Chairman and CEO of her company the same day and has reportedly lost between 400 million and 700 million dollars as a result of the bad publicity and declining stock value in her company, thanks to the two-year investigation by the government.

>Related Link:
Martha’s Empire


Inside Peter Bacanovic, by John Small

At 42 years of age, six feet tall with brown hair and good looks, Peter Bacanovic looks the part he plays; socialite, confidante, banker, supporter of the arts. Until the ImClone scandal went public in the summer of 2002, he was a broker for the rich, famous and fabulous. He regularly escorted society women to gala affairs while their husbands stayed at home. His best friends include socialites
Susan Fales-Hill and Muffie Potter Aston. Martha was one of those whom he escorted quite often. The term for that is a "walker, which refers to any male who engaged in such social escorting.

Peter grew up on Manhattan's Upper East Side in the 70's, a wild time in The City that has not been replicated since. At age 15, he was partying at Steve Rubell's Studio 54 until 3 in the morning. He summered in the Hamptons, where his parents owned a home.

He attended the exclusive Lycée Français with the children of bankers and diplomats. As a favor I used to pick up the younger brother and sister of a friend there some afternoons, and many of the Lycées students in little blue blazers would head over to Madison Avenue to raid the local gourmet candy store, while others were met by their limo driver. There, Peter learned to speak french with a perfect accent. His friends gave him a nickname that would prove prophetic: "Blind Ambition."

Later Peter attended Columbia University, where he made a friend with someone who would alter the course of his life, Martha Stewart's daughter Alexis, who was attending Barnard.

The next piece of the puzzle fell into place after college, when he went to work briefly at a small biotech company called ImClone. The company was run by a social climber named Sam Waksal, a man who partied with Mick Jagger while hunting for the cure for cancer.

In 1993, Peter would become a stock broker for Merrill Lynch, with two of the highest profile clients in the world. One was Sam Waksal. The other, Martha Stewart.

Peter was perfect in this world, feeling at home with dowagers and debutantes, philanthropists and tycoons. His storied life was picture-perfect. He even chose to live in the Upper East Side townhouse where Holly Golightly lived in "Breakfast at Tiffanys"

By the mid-nineties, with Internet stocks the rage, Bacanovic was a fixture on the New York social circuit, and a big supporter of many arts organizations. Peter was often seen with Marina Rust, the gorgeous Susan Fales-Hill, or Sloan Lindemann Barnett on his arm. An account of Bacanovic's social exploits can be found on David Patrick Columbia's
New York Social Diary:

"While their husbands ducked out of such evening drudgery, he was available every night, with a camera-ready grin and the ability to chatter the night away on every topic from the ballet to his favorite Andy Warhol painting to seating plans for an intimate dinner at Da Silvano. "He is like a bumblebee," says one woman friend. "He tells Susan Fales-Hill what Sloan is wearing and vice versa. But he is so happy and charming. When you see him at a party, you really want to talk to him."

"Susan Fales-Hill, a friend of Bacanovic's since the sixth grade at the Lycée Français, is more vehement in his defense: "If anyone is social climbing, it's people climbing to be with him. He has known Sloan Lindemann since she was 2. He has always been part of this world. People just seek him out. I was talking to Muffie Potter Aston at the American Ballet Theatre. He has raised well over seven figures for them, and she is breathing fire. I'm worked up, too. It's insane."

Perhaps one of those social climbers she refers to was Peter's assistant at Merrill Lynch, Vassar graduate Douglas Faneuil. An aspiring model, Douglas also made the scene with friends from the fashion world. Douglas came to settle on a more lucrative opportunity at Merrill Lynch, working for Peter, often filling in while his boss was away. Douglas was there at work the day Martha sold ImClone stock, but Peter was away in Miami. Weeks later, while his boss was again away in London, the Feds cornered young Faneuil, alone. At first he agreed with Bacanovics version of the sale. But then something happened. Faneuil changed his version of events and is now cooperating with US Attorney James Comey's investigation. As a result, the social web that brought together Martha, Peter, Sam and Douglas is now in tatters.

These days Peter Bacanovic is laying low, staying with friends in LA and London, popping into Saks Fifth Avenue for the occasional gift, and spending lots of time with his lawyers. But Peter's closest friends are still big supporters. That will be important as this case moves forward, as prosecutors attempt to turn him against those in the world that once gave him so much satisfaction.

Douglas Faneuil (prosecution’s star witness):

Douglas Faneuil, 28, was born and raised in Newton, Massachusetts to an upper-middle class family. He is described in
one account as a "baby-faced former brokerage assistant who lives in relative obscurity in an apartment in Brooklyn, famous among his friends as a fierce competitor at Ping-Pong and air hockey."

As a teenager, he worked as a delivery boy for Bill's Pizzeria in Newton, which serves very good pizza by Massachusetts standards. He attended upper-middle-class Newton South High School, where he graduated in 1993. In a senior class production of "South Side Story," a spoof of the musical "West Side Story," Faneuil, 17 years old, appeared as a nerd and sang a solo.

He spent two years studying at Bennington and finished at Vassar College. Faneuil studied political science and art.

He moved to New York where he worked as a financial analyst for D.E. Shaw, where he worked for four years, at the Manhattan-based hedge fund. After obtaining his series 7 license, he was able to process stock trades.

Faneuil met Peter Bacanovic at several social engagements before he was hired as his assistant stock broker at Merrill Lynch in the spring of 2001 at the age of 26.

Douglas Faneuil is the key witness in the case against both his former client Martha Stewart and his former boss Peter Bacanovic, since he is the one who was in the office the day of the most famous trade of a single stock in history. As the assistant broker, Faneuil handled day to day matters while his boss Peter Bacanovic was away. He relayed messages between Martha and Peter and executed the stock sale.

Prosecutors say that Faneuil, on orders from his boss, told Martha Stewart that the family of ImClone founder Samuel Waksal was trying to sell his shares of ImClone stock. His account directly conflicts with both that of Martha Stewart and Peter Bacanovic. They both say that weeks earlier, they had made an oral agreement to sell Stewart's shares if the stock fell below $60. In fact, months earlier Martha Stewart had already tried to sell all of her shares to drug giant Bristol-Myers, but was only able to sell a portion of her holdings.

According to published accounts, he has dated Robert Haskell for four years. Haskell is a society editor/gossip columnist at W magazine, who broke news when Britney Spears told him she had lost her virginity to fellow pop idol Justin Timberlake. Robert Haskell may be called as a witness in the case to corroborate Faneuil's story that he was pressured by his boss Peter Bacanovic into changing his testimony during the federal investigation into insider trading.


Sam Waksal

Sam Waksal, founder and former CEO of ImClone Systems Inc., is worth mentioning here mainly because he has so little to do with Martha’s and Peter’s case. He has not yet been named as a potential witness for either the defense or the prosecution. Waksal told 60 Minutes that in spite of the fact that he did not tell Martha Stewart about the FDA notice before her stock trade, they have pressured him to cooperate in the Martha Stewart prosecution. Waksal said he believes that if he did "cooperate" that they would be "very "happy campers."

Sam Waksal founded ImClone, a company that made him a wealthy man; Waksal reportedly made $60 million in 2000, and more than $70 million in 2001. His Thompson Street loft in Soho was lavishly furnished with a collection of modern art, most of it purchased through uber-dealer Larry Gagosian.

In a completely separate trial, which began in the spring of 2003, Sam Waksal was charged with criminal insider trading, conspiracy, obstruction of justice, perjury and bank fraud. He pled guilty to all charges and was eventually found guilty, sentenced to 7 years in prison and ordered to pay $4 million in fines. He is currently serving his sentence at Schuylkill Federal Correctional Institute in Minersville, Pa.

Sam dated Martha’s daughter, Alexis, in the early ‘90s and eventually became a close friend of Martha’s. While Sam did tip off many family members and friends about the FDA rejection of his company’s cancer drug, Erbitux, he has never admitted to tipping off Martha. Phone records have proven they did not speak the day of Martha’s ImClone trade.

Sam Waksal is the subject of several upcoming books, including Saving Martha by John Small, and The Cell Game : Sam Waksal's Fast Money and False Promises--and the Fate of ImClone's Cancer Drug by Alex Prud'homme (January "04)


The Defense:

Robert Morvillo

'Martha Stewart has done nothing wrong. The government is making her the subject of a criminal test case designed to further expand the already unrecognizable boundaries of the federal securities laws.'

'Though the government has not charged her with insider trading, it alleges that public statements drafted by her distinguished attorneys in June 2002 about the reasons she sold ImClone stock constitute a fraud. These unprecedented charges are baseless.'

According to New York magazine,"Brooklyn-born Morvillo is built like Don Zimmer and sounds like Ed Koch. " And that's a compliment. Morvllo, 64 is a tough, smart attorney who has had his share of high profile cases, including the bribery case against real-estate broker John Zaccaro, Geraldine Ferraro’s husband. Zaccaro was acquitted. He has also has represented clients ranging from Saudi-born business executive Adnan Khashoggi to Robert Iler, a star on "The Sopranos" TV show. But nothing any lawyer this side of Johnnie Cochran and Mark Geragos compares to the trial of Martha Stewart. At $650 an hour, he's going to earn every penny.

Bob Morvillo went to Colgate undergrad, then to at Columbia law. Morvillo made Law Review. In 1963, he married Catherine Shields, a second-grade teacher. He joined U.S. Attorney’s office in 1964. After clerking for the Honorable William B. Herlands, United States District Judge for the Southern District of New York, he served as an Assistant United States Attorney for the Southern District of New York from 1964 to 1968. In 1970, he was named Chief Trial Assistant in charge of the Frauds Unit at the United States Attorney’s Office. One year later, he became Chief of the Criminal Division.

In 1973, Morvillo teamed with John Martin and Otto Obermaier to open a firm specializing in white collar crime. The firm of Morvillo, Abramowitz, Grand, Lason & Silberberg, has grown from 3 lawyers to its current 36.

He recently duked it out with NY Attorney General Elliott Spitzer, in the infamous battle between Merrill Lynch and NY State over Wall Street analyst recommendations in the wake of the dot com bust. Merrill was forced to pay $100 million in fines after Spitzer released Merrill Lynch analyst Henry Blodget’s internal e-mails about puffing up “POS” stock offerings hit the newspapers. So Morvillo has had a taste of the hardball PR tactics he will no doubt face in this trial.

John J. Tigue, Jr.

From the Morvillo, Abramowitz, Grand, Lason & Silberberg website:

John J. Tigue, Jr. is a leader in the field of tax fraud litigation, with extensive experience in handling complex civil and white collar criminal matters in state and federal court for individual and corporate clients.

Mr. Tigue received a B.S. from Saint Peter's College and an LL.B. from New York University School of Law and became a Certified Public Accountant in 1966. From 1970 to 1973, he served as an Assistant United States Attorney for the Southern District of New York.

He practiced at Kostelanetz Ritholz Tigue & Fink from 1973 to 1994. He became a principal at MAGIS in 1994.

Mr. Tigue is a co-author of the book Dirty Money: A Study in White Collar Crime (Simon and Schuster, 1975) and author of the chapter on Tax Crimes in White Collar Crime: Business and Regulatory Offenses (Law Journal Seminars - Press, 1990).

The Prosecution:

James B. Comey may forever be remembered as the man who indicted Martha Stewart. According to NY Magazine: He was born in Yonkers 42 years ago, the second of four children in a middle-class Irish-American family. Comey’s father worked in corporate real estate; his mother was a homemaker and computer consultant.

He attended the College of William and Mary, and later studied law at the University of Chicago. In 1987, he was hired as an assistant U.S. Attorney in New York’s Southern District by then-boss Rudy Giuliani.

He received much notice for his work on counterterrorism: "In early 2001, FBI director Louis Freeh was frustrated with the slow pace of the investigation of the 1996 Khobar Towers bombing in Saudi Arabia, which killed nineteen American servicemen. Freeh steered the case from Washington prosecutors to Comey in Richmond. Comey quickly delivered fourteen indictments—gaining the attention of President Bush. Six months after the Khobar Towers indictments, Bush nominated Comey to replace Mary Jo White."

Mr. Comey was recently promoted from US Attorney to Deputy Attorney General of the US, the #2 spot under John Ashcroft.

Martha Stewart's lawyer Robert Morvillo describes him as "the kind of guy you'd like to get a beer with at the end of the day." "He's a smart, classy guy … not a zealot like Ashcroft," said flamboyant mob lawyer Bruce Cutler, who went head-to-head with Comey in the Gambino organized-crime trial in New York. He is married to wife, Patrice, and they have five kids - ages 3 through 15.

Karen Patton Seymour

Karen Patton Seymour is the 42-year-old chief of the criminal division of the Manhattan U.S. Attorney's Office. When she was appointed to the case, the Wall Street Journal published their own somewhat misogynistic piece entitled "Martha Stewart and the 'gender card' The subtitle was a classic: "To quell bias issue, U.S. selects female prosecutor in case against home-decorating maven; Move points to behind-the-scenes gamesmanship in high-profile case " They even compared their taste in clothing: "Stewart, born in Jersey City, N.J., prefers pants; Seymour, who hails from Big Springs, Texas, favors skirts. " And we prefer news without the spin. It's reporting like this that makes you miss the NY Times' Jayson Blair.

The Judges:

Hon.
Miriam Goldman Cederbaum (criminal case), Hon. John E. Sprizzo (civil case)

Note: In addition to the criminal case, two separate civil trials will be held. The Securities and Exchange Commission is suing Martha and Peter for alleged insider trading. A group of investors in Martha Stewart's company (Martha Stewart Living Omnimedia) is also suing Martha and some other members of the company for stock losses due to the fallout from the investigation.





©2004 SaveMartha.com
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