Jurors Hear of Attempt by Stewart to Alter Phone Log

Martha Stewart altered a computer log of a phone message from her stockbroker regarding a crucial stock trade shortly after learning that authorities wanted to question her about the matter, her secretary testified Tuesday.

Ann E. Armstrong, who has worked for the lifestyles tycoon since 1998, also recalled that Stewart almost immediately ordered her to change the message back to its original wording.

Prosecutors in the federal fraud and obstruction of justice trial contend that altering the message was part of an attempt by Stewart and her co-defendant, former broker Peter E. Bacanovic, to cover up the reason for her December 2001 sale of $228,000 worth of ImClone Systems Inc. stock. The sale came a day before damaging news that caused the stock to plunge.

Less than a week after changing the phone log, Stewart told federal investigators that she did not know whether there was any written record of Bacanovic’s call, a Securities and Exchange Commission official testified later Tuesday.

Armstrong broke down sobbing on the witness stand late Monday, causing U.S. District Court Judge Miriam Goldman Cedarbaum to call a recess and send the jury home about 15 minutes early. When the aide resumed testifying on Tuesday, she had no further difficulty.

The phone message from Bacanovic came on the morning of Dec. 27, 2001, a few hours before Stewart sold her stock. Armstrong recorded the message on her computer as: “Peter Bacanovic thinks ImClone is going to start trading downward.”

On Jan. 31, 2002, after authorities had called to arrange their Feb. 4 interview with Stewart, she stopped by Armstrong’s desk and asked her to call up the phone log on her computer. Then Stewart sat down at Armstrong’s computer, something the aide said she had never seen her boss do before.

“Martha saw the message from Peter,” Armstrong testified, “and she instantly took the mouse and she put the cursor at the end of the sentence, and she highlighted back up to the end of Peter’s name, and then she started typing over that.”

The revised message read: “Peter Bacanovic re: ImClone,” Armstrong testified.

After finishing, Stewart “instantly stood up and, still standing at my desk, she told me to put it back. ‘Put it back the way it was,’ ” Armstrong testified.

Stewart’s lead lawyer, Robert G. Morvillo, characterized the incident in his opening argument two weeks ago as “much ado about nothing,” emphasizing how quickly Stewart had changed her mind.

During Morvillo’s cross-examination of Armstrong, the secretary said at no point did Stewart ever ask her to conceal or lie about the incident.

Later Tuesday, SEC lawyer Helene Glotzer testified that during the Feb. 4 interview with investigators, Stewart “said she didn’t know” if there was a phone record.

She also denied having heard on the day of her stock sale that her friend Samuel D. Waksal, then head of ImClone, was trying to unload his shares in the biotech firm.

Star government witness Douglas Faneuil, Bacanovic’s former assistant, testified that at Bacanovic’s insistence, he had passed on to Stewart the tip that Waksal and his family were trying to sell ImClone stock.

According to Glotzer, the Feb. 4 interview ended with Stewart saying, “Can I go now? I have a business to run.” Glotzer described Stewart’s tone as “curt, annoyed.”

Glotzer said that in Bacanovic’s Jan. 7, 2001, interview with the SEC, the broker said it was he, not Faneuil, who had taken Stewart’s trade order.

Richard M. Strassberg, Bacanovic’s chief defense lawyer, tried to cast doubt on Glotzer’s recollection during cross-examination, pointing out that she had taken no notes during the informal session.