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Defense witness bolsters Stewart's story

Weeks before Martha Stewart sold her ImClone Systems stock, her stockbroker mentioned his desire to get rid of her shares before they fell to $60, a Stewart business manager testified Monday.
Martha Stewart enters Manhattan federal court, Monday in New York. Louis Lanzano / AP
/ Source: The Associated Press

Weeks before Martha Stewart sold her ImClone Systems stock, her stockbroker mentioned a desire to get rid of the shares before they fell to $60, a defense witness testified Monday.

The testimony by Heidi DeLuca, a business manager for Stewart, undercuts the government’s charge that Stewart and the broker came up with a $60 sale price later as a cover story.

DeLuca said stockbroker Peter Bacanovic told her on Nov. 8, 2001, that he could “set a floor price of $60 or $61” for Stewart’s ImClone shares.

“He said he would speak to Martha about it personally,” DeLuca said. The conversation would have been long before Stewart dumped her shares on Dec. 27, 2001.

Earlier, a former lawyer for Douglas Faneuil, the government’s star witness at Stewart and Bacanovic’s trial, took the stand and bolstered key elements of Faneuil’s testimony.

The testimony came as Stewart got support from Bill Cosby, who wore sunglasses as he sat directly behind her in the courtroom. Asked by reporters why he showed up, Cosby said: “I’m here for a friend.”

On Feb. 2, Rosie O’Donnell appeared at the trial, sitting in the front row and jokingly offering a prosecutor a bag of peanut M&Ms as a bribe to drop the case.

In Monday’s testimony, Jeremiah Gutman, who was retained by Faneuil in early 2002, was called as a witness by lawyers for Bacanovic. But he appeared to boost some of the main assertions Faneuil gave for the prosecution.

Faneuil has testified that he passed a tip from Bacanovic to Stewart on Dec. 27, 2001, that ImClone Systems CEO Sam Waksal was unloading his ImClone shares. Stewart promptly sold hers.

The story given by Faneuil, a former assistant at Merrill Lynch & Co., is central to the government’s case that Stewart and Bacanovic lied when they claimed they had a pre-existing deal to sell ImClone at $60.

Faneuil first supported Bacanovic and Stewart, then changed his story in June 2002 in a cooperation deal with the government.

Earlier in the trial, Faneuil testified that Gutman had told him he knew about a deal between Merrill Lynch and the government to ignore any wrongdoing by Stewart and hand over Waksal “on a silver platter.”

The defense has tried to discredit that story. But Gutman testified Monday that, while he did not use those words, he told Faneuil “something like that.”

Gutman said a Merrill official “had told me that he was working on making a deal and that deal would involve getting all Merrill Lynch people off the hook, and let the chips fall where they may.”

He described Faneuil at the time as distraught to the point of tears. Merrill Lynch officials have denied the existence of any deal.

Calling Gutman, an 80-year-old civil rights lawyer, was something of a risk for Bacanovic’s attorneys. He repeatedly declined to meet with them before the trial and has emerged as a key figure.

An FBI report of a 2003 interview with Gutman raised the possibility that Faneuil had initially told his lawyer that Waksal, not Bacanovic, had ordered him to tip Stewart about the ImClone selling.

Prosecutors said at the time that Gutman’s memory was faulty.

Also Monday, U.S. District Judge Miriam Goldman Cedarbaum declined to rule immediately on whether she should throw out any charges in the case. Lawyers for Bacanovic and Stewart over the weekend gave the judge papers urging her to dismiss parts of the indictment.

The judge has appeared intrigued by the possibility of throwing out the top count against Stewart, securities fraud, which accuses her of deceiving investors in her media conglomerate, Martha Stewart Living Omnimedia.

The judge has called that charge “novel” and “the most problematic” of the five counts each against Stewart and Bacanovic.

The securities fraud count refers to three statements Stewart and her lawyers made in June 2002 in which they insisted she sold ImClone because of the $60 agreement.

Prosecutors say that was a deliberate play to keep the stock price of Martha Stewart Living Omnimedia high. Stewart owned nearly all the voting shares in the company and stood to lose $30 million for every dollar the stock fell.

Later Monday, a defense ink expert testified Bacanovic used at least three pens on a worksheet of Stewart’s portfolio on which the notation “(at)60” appears next to a listing for her ImClone stock.

The government contends Bacanovic added the notation to make the $60 agreement seem legitimate.

But the expert, Albert Lyter III, said the “(at)60” appears to have been made with the same pen as a small dash that appears next to a listing for Apple Computer stock.