Martha Star Witness: I Did 'Something Illegal'

Broker's assistant Douglas Faneuil (search), the government's star witness in the Martha Stewart (search) trial, testified Tuesday that Stewart's stockbroker ordered him to pass an ImClone Systems stock tip to Stewart just before she dumped her shares in the company.

"I did something illegal," Faneuil said shortly after taking the witness stand. "I told one client what another was doing and lied to cover it up."

Faneuil, a former assistant at Merrill Lynch & Co., testified that broker Peter Bacanovic (search) ordered him on Dec. 27, 2001, to alert Stewart that the family of ImClone (IMCL) founder Sam Waksal was trying to sell its shares.

Faneuil's testimony, delayed by five days after the judge penalized prosecutors for being too slow in turning over an FBI document, is the most critical piece of the puzzle that the government says implicates Stewart.

Faneuil said he expressed concern and asked Bacanovic whether passing such a tip would be appropriate.

"Of course. You must. That's the whole point," he said Bacanovic replied.

Faneuil described a hectic morning in which he fielded calls from Waksal's accountant and both of Waksal's daughters, before 10 a.m., all ordering him to sell the family's ImClone shares immediately.

Faneuil said he called Bacanovic, who was on vacation in Florida, to discuss the flurry of selling by the Waksals. He said Bacanovic blurted: "Oh my God, get Martha on the phone."

Stewart is on trial for lying to authorities who were investigating her December 2001 sale of ImClone shares, which prosecutors believe was based on an inside tip. The lifestyle trendsetter had placed the trade before there was a public announcement that caused ImClone shares to tumble.

Faneuil, who conducted the trade as Bacanovic's assistant, has pleaded guilty in the case and agreed to testify against his former boss and Stewart in order to win leniency.

Waksal later admitted he had advance word of a decision to be released the next day -- a negative government report on an ImClone cancer drug -- that would send the stock tumbling.

Stewart was unavailable and on her way to her own vacation in Mexico. But she called later in the day and ordered her entire stable of 3,928 shares of ImClone to be sold.

The government claims Stewart and Bacanovic then cooked up a false story and repeatedly lied to investigators, saying they had a pre-existing arrangement to sell ImClone when it fell to $60 per share.

Martha Stewart was one of Bacanovic's two most valuable clients, Faneuil testified. Bacanovic was close enough to the style maven that he got some shares in Stewart's own company when it went public, he said.

Faneuil was steady in his answers to prosecutor Karen Patton Seymour, and he praised his ex-boss.

"Peter (Bacanovic) was the best boss I ever had," Faneuil said. "It was a great working relationship. He was demanding yet appreciative."

Prior to his testimony, lawyers for Stewart and Bacanovic sought to discredit Faneuil. Judy Monaghan, an administrator at Merrill Lynch, testified that she told the former brokerage assistant to stop using company e-mail for personal messages. Monaghan gave no details about the content of the e-mails.

Reuters and the Associated Press contributed to this report.