- The Washington Times - Tuesday, February 10, 2004

NEW YORK (AP) — Martha Stewart altered a log of a phone message left by her stockbroker about ImClone Systems stock, then ordered her assistant to change it back, the assistant testified yesterday.

The original message read: “Peter Bacanovic thinks ImClone is going to start trading downward.” It reflected a call by Mr. Bacanovic on Dec. 27, 2001, the day Mrs. Stewart sold her 3,928 shares in the company — and the day before the company announced a negative decision from government regulators about an ImClone cancer drug.

The assistant, Ann Armstrong, testified that Mrs. Stewart saw the message on Jan. 31, 2002, and replaced it with the words: “Peter Bacanovic re imclone.”

“She instantly stood up, still standing at my desk, and told me to put it back to the way it was,” the assistant testified at Mrs. Stewart’s stock-fraud trial in Manhattan federal court.

Miss Armstrong told jurors she was “startled” by Mrs. Stewart’s conduct, and that Mrs. Stewart had never before altered a message in the log, which Miss Armstrong maintains at Martha Stewart Living Omnimedia, Mrs. Stewart’s media company.

The government contends that Mrs. Stewart was tipped by Mr. Bacanovic that the family of ImClone founder Sam Waksal was trying to sell his shares on Dec. 27. She is charged with obstruction of justice and securities fraud, among other counts.

Mrs. Stewart and the broker say they had a pre-existing deal to sell ImClone when it fell to $60 a share.

Prosecutors walked Miss Armstrong through her memory of January and early February 2002 with the intent of convincing jurors Mrs. Stewart was worried about the circumstances of her sale of ImClone.

They introduced a calendar entry showing Mr. Bacanovic scheduled a breakfast with Mrs. Stewart on Jan. 16, 2002, about three weeks after the stock sale.

Mrs. Stewart had met with or spoken to her lawyers on each of the three days before she changed the log, Miss Armstrong said. Four days later, on Feb. 4, Mrs. Stewart met with investigators for the first time in the ImClone probe.

According to a federal indictment, Mrs. Stewart said in that interview with investigators that she did not know whether Mr. Bacanovic’s message from Dec. 27 had been recorded in Miss Armstrong’s message log.

Helene Glotzer, a Securities and Exchange Commission lawyer, testified that Mrs. Stewart said in February that she did not recall any record of Mr. Bacanovic’s message from the day of the sale.

Mrs. Stewart also said she had sold her ImClone stock in a call with Mr. Bacanovic, Miss Glotzer said. Mr. Bacanovic’s assistant, Douglas Faneuil, handled the sale.

Mrs. Stewart also said she did not recall hearing that Mr. Waksal and his family were trying to dump ImClone stock, Miss Glotzer said.

She said Mrs. Stewart, at the end of the February interview, said: “Can I go now? I have a business to run.” She described Mrs. Stewart’s tone as “curt, annoyed.”

The altered message log represents one of the most critical pieces of evidence in the government’s case against Mrs. Stewart. Another is a worksheet that prosecutors say Mr. Bacanovic doctored after the stock sale to make it appear he and Mrs. Stewart had previously discussed a plan to sell ImClone when it reached $60 per share.

On Monday, Miss Armstrong broke down in tears as she recalled speaking to Mrs. Stewart on Dec. 27, when she gave her the message from Mr. Bacanovic. Miss Armstrong maintained her composure on the witness stand yesterday.

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