- The Washington Times - Friday, February 20, 2004

NEW YORK (AP) — The government rested its case yesterday against Martha Stewart and her stockbroker, and the judge said she would hear arguments next week on whether some charges in the case should be thrown out.

Prosecutors called 21 witnesses over 14 days of testimony, all designed to prove Mrs. Stewart lied about why she sold 3,928 shares of ImClone Systems stock in December 2001.

Lawyers for the homemaking mogul and her broker, Peter Bacanovic, planned to spend the weekend drawing up papers urging U.S. District Judge Miriam Goldman Cedarbaum to dismiss all counts against each defendant.

Judge Cedarbaum indicated she would hear arguments on the matter Monday but strongly suggested she was unlikely to even come close to tossing out the entire case.

“We all understand that there are substantial portions of this indictment that will not be dismissed — at this point, in any event,” she said.

The government contends Mr. Bacanovic sent word to Mrs. Stewart on Dec. 27, 2001, that ImClone Chief Executive Sam Waksal was trying to dump his shares in the company. Mrs. Stewart sold hers that day, netting about $225,000.

Mrs. Stewart and Mr. Bacanovic say they had a standing agreement that her ImClone shares would be sold when the stock fell to $60.

The judge appeared to be most concerned about a count of securities fraud that accuses Mrs. Stewart of deceiving investors in her own company, Martha Stewart Living Omnimedia, by asserting that her ImClone sale was based on the $60 order.

Judge Cedarbaum called that count “the most problematic” in the indictment, and urged lawyers to focus on whether or not Mrs. Stewart had criminal intent — not just a motive — to lie to her investors.

In a brief argument on the matter yesterday, prosecutor Karen Patton Seymour pointed to remarks Mrs. Stewart made at an investor conference on June 19, 2002, when she insisted she had a $60 selling agreement for ImClone.

The government says Mrs. Stewart made several statements in June 2002 to prop up the stock price of Martha Stewart Living. Mrs. Stewart stood to lose $30 million for every dollar the stock dropped at the time.

“She knew and she hoped investors would rely on her word,” Ms. Seymour said. “She didn’t just say it for no reason. She said it purposefully.”

Stewart lawyer Robert Morvillo said his client was truthful in the essential part of her remarks that day — that she was never tipped directly by Mr. Waksal about the coming government refusal to review an ImClone drug that sent the shares tumbling.

Mrs. Stewart was never accused of knowing about the drug review in advance — only of knowing that Mr. Waksal was trying to sell.

In front of jurors yesterday, a critical prosecution witness wavered slightly about testimony that had damaged Mrs. Stewart.

Mariana Pasternak, a close friend of Mrs. Stewart’s, testified Thursday that Mrs. Stewart told her shortly after selling ImClone stock that she had been aware Mr. Waksal was trying to dump his shares.

In a separate conversation, Ms. Pasternak testified, Mrs. Stewart told her, “Isn’t it nice to have brokers who tell you those things?”

But under cross-examination yesterday by Mr. Morvillo, Ms. Pasternak said it was possible that remark was simply a thought that crossed her own mind — not something Mrs. Stewart said.

“It is fair to say I do not know if that statement was made by Martha or if that was just a thought in my mind,” she said.

Prosecutor Michael Schachter, trying to bolster Ms. Pasternak’s credibility, asked what her “best belief” was about the remark.

“That Martha said it,” she replied.

Ms. Pasternak never wavered in the central element of her testimony — that Mrs. Stewart was aware when she sold her ImClone shares that Mr. Waksal had been trying to sell as well.

Mrs. Stewart told investigators in April 2002 that she had no memory of being told about Mr. Waksal just before she sold.

The government also sought to bolster the testimony of Douglas Faneuil, a former Merrill Lynch & Co. assistant. The government’s star witness testified that he passed the tip about Mr. Waksal from Mr. Bacanovic, his boss, to Mrs. Stewart.

Mr. Faneuil initially supported the $60 story. But he struck a cooperation deal with the government in June 2002 and agreed to testify against Mrs. Stewart and Mr. Bacanovic — an indication, the defense says, that he is a liar.

Two friends of Mr. Faneuil’s testified yesterday that he was distraught in January 2002, long before he changed his account, and that he confided in them that he was being pressured by his boss to lie.

Mr. Bacanovic’s defense team presented its first witness yesterday, a 10-year client who testified the broker was meticulous and honest in tending to his large portfolio.

“He worried about my stocks every day,” Kenneth Rainin said.

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