Shannon Stapleton  /  Reuters
Martha Stewart arrives with her daughter Alexis (left) at the Federal Courthouse in New York Thursday for her securities fraud trial.
updated 1/29/2004 3:03:32 PM ET 2004-01-29T20:03:32

A federal judge shut down the trial of Martha Stewart for the rest of the week Thursday, postponing the testimony of the government’s star witness after defense attorneys accused prosecutors of withholding vital information about his story.

The delay came after doubts were raised about what the former lawyer for witness Douglas Faneuil recalled about the circumstances of the stock sale that triggered the case against Stewart.

Faneuil is the former brokerage assistant at Merrill Lynch & Co. who sold Stewart’s 3,928 shares of ImClone Systems stock in 2001 on orders from Stewart.

The government says Stewart sold the shares because her stockbroker and co-defendant, Peter Bacanovic, sent a tip through Faneuil that ImClone Systems founder Sam Waksal was trying to dump his family’s shares.

But Faneuil’s former lawyer, Jeremiah Gutman, gave a statement to the FBI in 2003 that raised questions about whether it was Bacanovic or Waksal who had ordered Faneuil to tip off Stewart.

In court Thursday, defense attorneys suggested Faneuil had told his lawyer he was not sure whether it was Bacanovic or Stewart. The government suggested it was Gutman, who is in his 80s, not Faneuil who could not recall.

It was not immediately clear why prosecutors turned over Gutman’s FBI statement late Wednesday night. Lawyers for Stewart and Bacanovic said it should have been provided to them long ago.

“I do think the government should have turned over this information sooner,” U.S. District Judge Miriam Goldman Cedarbaum said.

Faneuil had been scheduled to testify Thursday, but Cedarbaum postponed the testimony indefinitely. When prosecutors could not arrange for another witness to come in ahead of schedule in Faneuil’s place, she called the trial off for the week. It had already skipped a day Wednesday because of a snowstorm

Defense attorneys want at least a week to investigate Gutman’s statement to the FBI in 2003, as well as Gutman’s discussions with Faneuil in January 2002.

Gutman himself, who no longer serves as Faneuil’s lawyer, has declined to be interviewed by defense attorneys.

“The government knows what its obligations are,” Stewart attorney Robert Morvillo told the judge. “The government has failed to fulfill their obligation with respect to Mr. Faneuil.”

The government claims it did not violate any trial rules, and that it was sufficient just to tell the defense that Gutman was part of their case — not what he specifically recalled.

“For Mr. Morvillo to claim there’s a Brady violation here is disingenuous,” prosecutor Karen Patton Seymour said, referring to a trial rule that requires prosecutors to share some information about witnesses with the defense.

Bacanovic lawyer Richard Strassberg first asked the judge to throw out the indictment against his client, then asked her to declare a mistrial. The judge denied both requests.

Also Thursday, Cedarbaum said she would consider a request from Stewart’s attorneys to question Faneuil “about drug use,” but asked the defense to produce documents backing up its request. The judge did not elaborate.

Just after Stewart sold the stock on Dec. 27, 2001, a negative government report about an ImClone cancer drug sent the stock tumbling. Waksal later admitted he had advance knowledge of the report.

Stewart and Bacanovic are accused of cooking up a false story about why Stewart sold the stock that day. They claim they had a pre-existing agreement to sell ImClone when it fell to $60 per share.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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