When ImClone chief operating officer Harlan Waksal received the fateful phone call on Christmas Day from Bristol-Myers Squibb warning that the FDA would be rejecting the company’s hot new cancer drug, Erbitux, on December 28, one of his first calls was to his brother Sam, staying at the Hotel St. Barth Isle de France. As he does every year, Sam was spending his Christmas there; close pals Harvey Weinstein, financier Arthur Altschul (father of ex-MTV V.J. Serena), and record producer Clive Davis were also on hand, hanging out on the beach. But he cut his vacation short. “I’ve got to take care of some business,” he said to one friend. He flew back to New York on his leased jet on December 26, telling people he’d return to the island in a couple of days with Andrea Rabney, ImClone’s director of communications, who has also been the main woman in his life for the past few years.
People on the beach talked obsessively of his abrupt departure, but he held his cards close. “Before he left Saint Bart’s, I asked him if I should sell, and he told me the trouble was just people selling short,” one investor pal says. “He must have had his shortlist – and I wasn’t on it.”
To Waksal, the FDA rejection was news bad enough to bend the mind. He was leveraged to the gills with $80 million in debt, $65 million of which was on margin, secured by his stock, which was sure to crater when the FDA made its announcement. His monthly margin bill was a cool $800,000. If ImClone collapsed, he would be ruined.
Arriving back at his 5,000-square-foot loft on Thompson Street in Soho that night, he allegedly started working the phones – first to his father and then, the next morning, his daughter.
Martha Stewart was on her way to Mexico for her New Year’s holiday. Also an ImClone shareholder, as well as a close friend of Sam’s, she had, on December 21, left a contact number with Waksal’s office as to her whereabouts in Mexico.
Peter Bacanovic, Stewart’s glamorous, socially adept private banker at Merrill Lynch, was out of the office, too – on vacation in Miami, where friends had lent him a house from Christmas Day through New Year’s – as ImClone began to implode. Holding the fort on the morning of December 27 for Bacanovic was his 26-year-old assistant, Douglas Faneuil. Faneuil had been on the job about a year; before that, he had worked as an analyst for D.E. Shaw, a New York hedge fund. With his series 7 license qualifying him to process stock trades, Faneuil’s primary job was to take care of the details for Bacanovic, who spent his time ministering to an archipelago of wealthy clients spread across the country; Bacanovic was on the road as much as a week per month.
Now the sky seemed to be falling down on Faneuil. Volume on the stock was building, and ImClone was down off its high of 75 just weeks before. Wall Street’s rumor mill was churning with talk that the FDA would soon reject Erbitux. So when the order came in at 9:01 a.m. from Aliza Waksal to sell 39,472 shares, followed by her father Sam’s attempt to transfer 79,797 shares into his daughter’s Merrill account for another sale, Faneuil, Bacanovic, and the compliance officers at Merrill Lynch became suspicious. Something was up with ImClone. Aliza’s shares were sold, but because he was an insider, the father’s trade was refused.
By 11 a.m., ImClone was sinking toward $60. A phone log submitted by Stewart’s office to the House Energy and Commerce subcommittee reads as follows: “Peter Bacanovic called – ImClone is going to be trading lower.” Stewart picked up the message from her office and at 1:43 p.m. sold her 3,928 shares through Faneuil. Almost simultaneously, she left the following message at Waksal’s office: “Something’s up with ImClone. She wants to know what.” (Significantly, most accounts have Stewart calling Bacanovic before the sale; but some with knowledge of the situation maintain they hadn’t talked at that point.) An hour or so later, a Merrill Lynch biotechnology analyst got on the squawk box to the firm’s 15,000 brokers and issued an alert: There was acute selling pressure on the stock, the FDA decision loomed, the stock looked weak.
At 2:55 p.m. the next day, the FDA faxed a letter of rejection to ImClone offices. ImClone announced the news after the market’s close that day. The following Monday, ImClone plunged 16 percent. On June 12, Sam Waksal was arrested on charges of insider trading. On June 21, Bacanovic and Faneuil were suspended with pay by Merrill Lynch over factual inconsistencies with regard to the Stewart trade. Today, ImClone trades at just under $9.
That Sam Waksal will be found guilty seems almost a given. His was an act epic in its stupidity, a desperate, bet-the-ranch gesture by an insecure man in the throes of panic – and greed.
Waksal, in his trademark baseball cap concealing a bald spot, had long been one of the unlikeliest of the macho, large-living movie and media and culture machers – Weinstein, New Line president Bob Shea, art dealer Larry Gagosian, music lawyer Allen Grubman, concert promoter Ron Delsener. In the Hamptons, he’s a Nick & Toni’s regular. With his Ph.D. in immunology and a formidable reading list, he’s more intellectual than some in his set, but that’s not always the way he’s been perceived. “Sam Waksal is not going to be the one to cure cancer,” says a friend. “You know, find somebody in a lab coat who never goes out, who looks like Albert Einstein. That’s the guy who’s going to cure cancer, not Sam Waksal.”
Tellingly, the person in his family who didn’t sell was probably the shrewdest financially – his daughter Elana Waksal Posner. Married to Jarrett Posner, who works for financier Nelson Peltz, Elana, smart and aggressive, ran for City Council last year, and often counsels her father on business. Her sister, Aliza, younger and bubblier, an aspiring actress who once dated David Lauren, is the one who pulled the trigger on the sale, cashing out for about $2.5 million. Waksal’s father, 83 years old, a Holocaust survivor (so is his mother), also sold on the 27th.
But what about Stewart, and what about Bacanovic? While Waksal has always had about him more than a tinge of the hustler, Martha Stewart and her broker had both made their careers (Stewart presiding over the multi-million-dollar empire of her very self; Bacanovic as a private banker welcome in Manhattan’s most rarefied salons) devoting the utmost energy to making it look easy. Missteps – let alone of this magnitude – are almost nonexistent in their lives.
Stewart is, by a wide margin, Bacanovic’s most significant client. The two have a relationship that dates back sixteen years. A Manhattanite born and bred, reared on nights at the theater and dinners at Sardi’s, Bacanovic became friends with Stewart’s daughter, Alexis, while he was at Columbia and she was at Barnard. Through Bacanovic’s time at ImClone in the early nineties, during which he came to know Sam and Aliza, they kept in touch. When Bacanovic joined Merrill Lynch in 1993, Stewart gave him a small slice of her portfolio to look after. With his perfectly stubbled chin, flashing smile, and impeccable manners, he also made for the ideal, entanglement-free escort for Stewart, who has remained single since her divorce from Andy Stewart in 1990.
By the mid-nineties, Bacanovic himself was very much a fixture on the New York social circuit. At an American Ballet Theatre opening or an event at the New York Botanical Garden, he could be seen with a Marina Rust, a Susan Fales-Hill, or a Sloan Lindemann Barnett on his arm. How they loved him: 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.”
Much ink has been spilled about Peter Bacanovic the social climber. It is true that he attached himself to the likes of society arbiters such as Nan Kempner at an early age. “But he wasn’t a climber,” says his old friend Brad Gooch. “He was incredibly enthusiastic about the society scene, the way other people love movies or Picasso, or other boys follow sports. He mythologized Upper East Side society, which is odd, because generally people who do that are outsiders, and Peter was an insider. He lived there and went to school at the Lycée Français. I was writing for Vanity Fair when I first became friendly with him – he had a line-by-line knowledge of the magazine. Peter, in his early twenties, knew everything about the social network.”
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 most important, Bacanovic just does not like to spend any time alone – it’s a quality, some of his friends say, that’s linked to a propensity for depression. So after putting in a full day at the office, instead of returning home to his Upper East Side townhouse – where Breakfast at Tiffany’s was shot – he will opt instead for a night out at some charity event with a group of friends. In the interest of keeping his head as clear as possible, he won’t drink, nor will he hit people up for business. Indeed, many of his society friends have only the vaguest notion that he is one of Merrill Lynch’s more successful private bankers, managing a couple hundred million dollars in client accounts. Nor will the society columns refer to him as Peter Bacanovic of Merrill Lynch – just Peter Bacanovic.
To be sure, he is not the typical blindered, hard-charging Merrill Lynch broker. His effete air and refined tastes as well as his soft-sell approach suggest a more classically old-world approach to money, one at odds with the push-the-envelope mentality that drives the model Merrill Lynch financial consultant. Rarely would he talk about stocks at a dinner party, but if a friend had a need, then Peter would be only too happy to offer a few whispered words of advice. It’s a successful strategy; the less Bacanovic pushed his business, the more in demand he seemed to become. Clients come mainly through referrals, and he is forced to turn a number of them away. The clients vary: many of the trust-fund variety but many, too, who are less grand, including a mix of writer and artist friends. But none were as prominent as Stewart.
Through much of last fall and early winter, friends say, Bacanovic and Stewart had been having a spirited debate about the prospects of ImClone, hooking up by phone about twice a week.
Stewart had bought 5,000 shares of ImClone a number of years back on the recommendation of her good friend Waksal. Her cost price was probably in the single digits or teens. In October 2001, she attempted to sell her stake when the drug giant Bristol-Myers Squibb, making a $1 billion investment in the company, offered $70 a share to all public shareholders. The offer was oversubscribed and she could sell only 1,072 shares. After peaking at $75 on December 6, the stock began its descent as worry built in the market over FDA approval and the millions of dollars of insider selling by the Waksal brothers.
Friends of Bacanovic say that he’d urged Stewart to sell, citing the stock’s volatility and the insider selling. But Stewart, herself a former stockbroker (and having her own relationship with Sam Waksal), was reluctant to unload into a down market for the stock. It is now well known that ImClone and Bristol-Myers insiders were aware as early as December 4 that the FDA was having its doubts over Erbitux. But as insiders sold, Stewart held on – perhaps out of loyalty to her old friend Waksal, perhaps out of pure stubbornness. While Bacanovic knew Waksal from his time working at ImClone and was Aliza’s broker, his friends say that they are not as close socially as they used to be; he hasn’t, for instance, appeared at Waksal’s star-studded Christmas parties for years now, and while Waksal may still be a client, he has not been a particularly active one of late.
On Friday, June 14, when Bacanovic emerged in the public eye as Stewart’s broker, he was on an airplane flying to London to visit a friend for the weekend.
As the story exploded in the tabloids, he remained in London.
Under pressure to explain the trade, Stewart told the media and investigators that she and Bacanovic had agreed to sell the stock if it went below $60. Bacanovic’s account of the stock sale – one that he had given the SEC in January and that he repeated to his superiors at Merrill while in London – was the same: There had been a client agreement between himself and Stewart that when the stock hit $60, she would sell. Many took this to mean that Stewart had placed what’s called a stop-loss order, meaning that there would be a paper trail; but people close to Bacanovic insist that this was a verbal agreement, and stress that neither one has wavered from this account.
While Stewart and Bacanovic may have offered different time periods for when the agreement was struck – she says November; he says December – friends point out that this was in the context of numerous discussions of when to get out of the stock. This seemed to be essentially where the insider-trader case would be made or lost. But then the case took a dramatic turn.
With Bacanovic in London, Faneuil faced some twenty hours of questioning by lawyers and high-level compliance officers at Merrill Lynch over a period of a week. Finally, Faneuil changed his story. He told the investigators that he had no knowledge of any client agreement. He also said that Bacanovic had pressured him to confirm the story, thus establishing the possible charge of obstruction of justice charge – a felony.
On Friday, June 21, Merrill distanced itself from whatever wrongdoing might have occurred by suspending both Bacanovic and Faneuil, citing “factual inconsistencies,” and submitting the results of its investigation to Congress, the SEC, and the U.S. Attorney’s office in Manhattan.
Bacanovic is said to be devastated by what he sees as Faneuil’s betrayal. “Peter has no enemies,” says a close friend. “He lives in a world where he is nice to people and people are nice to him.”
The two met a few times on the social circuit prior to Faneuil’s hiring last spring. Before D.E. Shaw, his résumé thins out a bit: a high-school stint at Bill’s House of Pizza. He grew up in Massachusetts (his mother lives in Dover, a wealthy, Waspy Boston suburb, where Faneuil is currently holed up), spent two years at Bennington, then finished at Vassar. He is a close friend of Robert Haskell, who is also an acquaintance of Bacanovic’s and formerly a gossip columnist at Women’s Wear Daily, where he wrote the “Eye” column. (Shortly before the story broke in the tabloids, the two were on vacation together in Bali). Faneuil, though, has none of the fascination with the Upper East Side A-list that Bacanovic has. He’s described as a hard worker, though people who know him say he doesn’t take the job home with him. He and Bacanovic were never terribly close. His friends are young people – without trust funds, for the most part – in magazines and the arts.
While Bacanovic hasn’t exactly shied away from publicity, friends now say that one of his concerns when hiring Faneuil was that employing a friend of a gossip columnist whose job it was to cover Bacanovic’s own friends and clients could put him in a tricky position. Faneuil was suspected of leaking Haskell a scoop – one of Bacanovic’s closest friends, socialite Marina Rust, had given birth to a baby girl. (“It’s a glamour girl!” the item burbled.)
But Bacanovic was generally satisfied with his assistant’s work fielding the barrage of phone calls that come in daily for his boss from friends and clients. It’s a punishing job being an assistant for Bacanovic; at times, he has had three people working for him at once. But Faneuil seemed up to handling the job on his own, though he didn’t get the same kick out of it as his boss did. “I don’t think it was ever really fun,” says a friend.
Now, three weeks after the case broke, the government seems determined to bring down the biggest game it can find. Federal prosecutors and congressional investigators hold strong cards, in the form of a sympathetic witness, the baby-faced Doug Faneuil, and a big target, Martha Stewart. They’ve already begun to see if they can get Bacanovic to turn against Martha as part of a possible plea bargain. The pressure for him to do this will be quite intense, people close to him say, although so far no such deal has been offered.
The facts of a possible insider-trading case against Bacanovic and Stewart are surprisingly murky. It seems unlikely that Bacanovic was told by any of the Waksals that the FDA was going to reject Erbitux. As the indictment shows, Waksal’s first concern was getting his family out of the stock at a decent price. Telling Bacanovic, whom he was not personally close to anymore, would likely have hindered that very purpose. Stewart herself was on an airplane and unreachable – and again, the first priority was his family. When the Waksal sell orders came in, Bacanovic either called Stewart’s office himself or had Faneuil call – he himself never spoke to her until after her trade was complete, say those with a knowledge of the matter – and warned that the stock would soon sink. When Stewart called in, she spoke with Faneuil. In the excitement of the moment, Faneuil could very well have said to Stewart that the Waksals were selling – an unethical revelation, perhaps, but not a classic case of insider dealing. He also could have reported that fact in the context of following orders: Peter thinks you should sell because the Waksals are disgorging.
Would that be illegal? “The law in this area is unsettled,” says Robert Heim, a former SEC investigator who’s now a partner at Meyers & Heim. “But if Faneuil indeed said that, under the current laws that would not be considered insider trading. The information was not obtained from any market participants or company insiders. The prosecution would have to explain that the information passed on to Martha had something to do with the FDA approval.”
But at any rate, for Stewart, it was information enough for her to sell. When asked to explain their actions, Bacanovic, who maintains that to this day he has no knowledge of what Faneuil said to Stewart on the phone that morning, said she sold because their target price had been reached.
But, ironically, the most dangerous charges against Stewart and Bacanovic now concern obstruction of justice.
Currently, Bacanovic is hiding out at a friend’s house. He’s irritated at Martha for not selling when he first told her to. Friends say he refuses to be alone. “It is a supreme irony that someone so cautious, who plays by the rules so much, who is so skillful at not putting a wrong foot forward, gets wound up in something where he didn’t do a thing wrong but suddenly is on CNN globally.”
His days are packed with long conferences with his lawyer – some lasting as long as five hours – fielding telephone calls from his friends, and, of course, busily writing thank-you notes (he is said to rival George Bush père in this crucial social nicety) to his hundreds of well-wishers. Martha Stewart would approve.
A brown station wagon full of photographers has been parked outside of his townhouse for more than a week now (a building where Faneuil has been expected has also been under paparazzi surveillance).
One day, though, he managed to sneak through the cordon, and Brad Gooch ran into him. “He seems sad now,” says Gooch. “He used to have this optimistic, peppy view of the world, an innocent relish of the social game. This experience has punctured that optimism.”
Waksal’s optimism, too, was punctured – for a while. “In the beginning, all Sam cared about was what people thought,” says one friend. “He asked, ‘Are people saying I’m a terrible man?’ “
Now, however, he’s taking a more proactive role. In the Hamptons, says another, “Sam’s been out at dinner parties every night. He’s always been about keeping up appearances. Even this week, he’s acting like nothing’s wrong, like it’s all under control and he knows something nobody else knows that will make it okay.”
Says another friend: “Sam came over to the house. He said to me, ‘Why would I have told Aliza to sell, and not told Elana?’ “
Talk, however, will only get him so far. “You know, when this is all over,” says a friend, “he’s not going to have any money, which, in this city, people don’t like.”