Government rests case against Stewart, broker

updated 4:05 p.m. ET Feb. 20, 2004

NEW YORK - The government rested its case against Martha Stewart and her stockbroker Friday, after a critical prosecution witness wavered slightly about testimony that had damaged the homemaking mogul.

But whether the jury will hear from Stewart, or even deliberate on one of the charges against her, will remain a mystery until next week.

U.S. District Judge Miriam Goldman Cedarbaum said she would rule Monday on a motion by Stewart attorney Robert Morvillo to dismiss a charge of securities fraud in the case.

The count accuses Stewart of deceiving investors in her own company, Martha Stewart Living Omnimedia, by announcing her ImClone Systems sale was proper.

Earlier Friday, a close friend of Martha Stewart wavered slightly on the stand over what the homemaking mogul confided about her ImClone Systems stock sale, saying a detail of her earlier testimony may have been “just a thought in my mind.”

Mariana Pasternak stood by her assertion, however, that Stewart said she knew that ImClone chief executive Sam Waksal was trying to sell his shares before Stewart sold hers.

Pasternak’s testimony came on cross-examination, as prosecutors prepared to rest their case in the securities-fraud trial.

A day earlier, Pasternak had testified that Stewart said she was aware ImClone CEO Sam Waksal was trying to sell his shares before Stewart sold hers — adding that Stewart had said, “Isn’t it nice to have brokers who tell you those things?”

But on cross-examination Friday, Pasternak said that remark may have been something she herself thought rather than something 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.’ — Mariana Pasternak Friend of Martha Stewart

“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 asked Friday for her “best belief” about the broker remark, and Pasternak answered: “That Martha said it.”

Prosecutors say Stewart lied to investigators on April 10, 2002, when she claimed she never recalled being told the Waksals were selling before she dumped her ImClone shares on Dec. 27, 2001.

Shortly afterward, the stock tumbled on news that the Food and Drug Administration would not review ImClone’s application for approval of its highly touted cancer drug, Erbitux.

Details of Martha’s stock sale — Martha Stewart averted at least $51,222 in losses with her well-timed sale of Imclone Systems stock. — She sold all 3,928 of her shares on Dec. 27, 2001, at $58.43 each, for a total of about $229,500. — On Dec. 31, the first trading day after the Food and Drug Administration announced it had rejected Imclone’s application for a cancer drug, ImClone opened at $45.39. — Exactly how much money Stewart may have made on the stock is not clear; the Securities and Exchange Commission did not require Stewart to disclose the purchase price of her stock, since she did not own a large enough stake. Source: Associated Press

While Stewart is not charged with knowing about the drug review, she told investigators in 2002 she did not recall being told anything about Waksal trying to sell his ImClone stock.

Waksal, a friend of both Stewart and Pasternak, is serving a seven-year prison sentence for insider trading. He and his family frantically sold, or tried to sell, their shares ahead of the drug announcement.

Stewart and her broker, Peter Bacanovic, who is also on trial, claim they had made a deal earlier in December 2001 to sell Stewart’s ImClone shares if the stock fell below $60. Prosecutors say that was a cover story.

Douglas Faneuil, a young former Merrill Lynch & Co. assistant, has testified Bacanovic ordered him on Dec. 27, 2001, to alert Stewart that the Waksals were trying to sell — then pressured him to cover it up.

Also testifying Friday was Zeva Bellel, who backed up Faneuil’s story that Bacanovic had ordered Faneuil to inform Stewart about Waksal’s decision.

Recounting a conversation with Faneuil, Bellel recalled how her friend detailed the pressure from Bacanovic to keep his mouth shut later. “‘There was nothing wrong with the sale. ... End of story,”’ the defendant allegedly told Faneuil.

The government has also laid out differences in the stories Bacanovic and Stewart told federal investigators. Stewart, for example, initially claimed she spoke to Bacanovic on Dec. 27, 2001, rather than to his assistant.

Ann Armstrong, a personal assistant to Stewart, also testified Stewart altered a computer log of a message left by Bacanovic on Dec. 27, 2001, then quickly ordered her to change it back.

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