Stewart’s Lawyer Targets Witness
Martha Stewart’s defense attorney set out to tear down the prosecution’s star witness Monday, claiming the witness told prosecutors that his ex-lawyer had advised him to lie to federal investigators.
Prosecutors didn’t challenge that claim. The Stewart legal team hopes to use it to attack the credibility of Douglas Faneuil, a former Merrill Lynch & Co. assistant to stockbroker Peter Bacanovic, Stewart’s co-defendant.
The story of the supposed advice -- flatly denied by the veteran civil-rights lawyer who once represented Faneuil -- emerged during legal skirmishing after a jury of eight women and four men was selected. Opening arguments in the fraud and obstruction-of-justice trial are set for today in the lower Manhattan courtroom of U.S. District Judge Miriam Goldman Cedarbaum.
Faneuil, 28, could take the stand as early as this afternoon, lead prosecutor Karen Patton Seymour said.
The charges against Stewart and Bacanovic stem from Stewart’s December 2001 sale of $228,000 worth of stock in ImClone Systems Inc., a biotech firm then headed by her friend, Samuel D. Waksal. The sale came a day ahead of news of an adverse Food and Drug Administration ruling on ImClone’s key cancer drug.
Stewart and Bacanovic have pleaded not guilty, saying Stewart had a prior arrangement to sell the stock when it dropped below $60.
On Monday, the defense suffered a setback when, after sending the jury home, Cedarbaum issued a ruling barring Stewart’s lawyers from arguing that there was anything improper about her prosecution or that she was being charged with fraud simply “for asserting her innocence and exercising her 1st Amendment right to free speech.”
The government contends that when Stewart, 62, made public statements last year declaring her innocence and referring to the prior arrangement to sell her ImClone stock at $60, she was falsely trying to prop up the stock of her own company, Martha Stewart Living Omnimedia Inc. -- committing fraud.
But in a six-page ruling, the judge specifically barred the defense from arguing that the lone securities-fraud count against Stewart is “a novel application of the securities laws.”
Cedarbaum also ordered the defense not to imply to the jury that Stewart wasn’t charged with insider trading because the government didn’t think she was guilty of it.
Some legal experts have speculated the lack of an insider trading charge could be used to cast doubt on the rest of the government’s case and that Stewart could go free if a jury thought she had been targeted unfairly.
Former federal prosecutor Anthony Pacheco of the firm Proskauer Rose in Los Angeles questioned the correctness of the judge’s ruling. “If the government is stretching the definition of securities fraud, why shouldn’t the defense be able to say so?”
Meanwhile, Stewart attorney Robert G. Morvillo launched an effort to get Faneuil’s lawyers to produce e-mails and other documents that might show how the star witness’ story has changed.
Morvillo said the government disclosed to him that in interviews with investigators, Faneuil had recounted conversations he had with his first lawyer, Jeremiah S. Gutman. According to Morvillo’s account, Faneuil had said that when he first was interviewed by Securities and Exchange Commission investigators in early January 2002, he lied about Stewart’s ImClone stock sale.
A couple of days after that first SEC interview, Faneuil hired Gutman, who told him he should go back to the agency and tell the truth. Gutman then had a meeting with David Marcus, an in-house attorney at Merrill Lynch who sat in on Faneuil’s first SEC interview, Morvillo said.
Marcus supposedly told Gutman “that Merrill Lynch had cut a deal with the U.S. attorney’s office to give them Sam Waksal’s head on a silver platter and to look the other way with regard to Martha Stewart,” Morvillo said.
Afterward, according to Morvillo, Gutman changed his advice to Faneuil, telling him he should keep on lying to the SEC.
Gutman, an octogenarian who was in the courtroom Monday, was asked for comment during a recess.
“I don’t lie, and I don’t tell people to lie,” Gutman declared.
Merrill Lynch declined to comment.
Michael Kulstad, a spokesman for the U.S. attorney’s office, said: “No comment. We’d rather let our case speak for itself.”
Legal experts said Morvillo was trying to obtain as many examples as possible of prior statements by Faneuil -- reputedly a prolific e-mailer -- that may conflict with the testimony he gives this week.
The government will have to concede that Faneuil initially lied about the Stewart trade, but it wants the jury to believe he’s telling the truth now. Under a cooperation agreement with the government, Faneuil pleaded guilty to a misdemeanor count of accepting gifts from Bacanovic, 41, in exchange for backing Bacanovic and Stewart’s story.
“The jury may understand his first misstatements,” Fordham University law professor James Cohen said of Faneuil. “He’s torn between conflicting loyalties, he’s young, and so forth, but they may be much less sympathetic if other lies can be found.”
According to transcripts of the questioning during jury selection, the 12 people who will decide the case include a man who said he lost money in a mutual fund “caused by dishonest business practices at Enron,” a woman who believes the poor don’t fare as well in the justice system as the wealthy and a woman raised in Uganda and India who knows Stewart from TV, “her cooking recipes and stuff.”
The mainly middle-aged jury, which also includes four male and two female alternates, was selected through an extensive winnowing process that resulted in 53 potential jurors -- from an initial pool of several hundred -- being called back to the courtroom Monday morning.
The lawyers then retreated to the judge’s chambers for about an hour to exercise their right to knock people off the panel whom they considered unfavorable to their case -- 10 challenges for the defense, six for the prosecution.
