Key Witness Can Testify Against Stewart, Judge Rules; O’Donnell Shows Support

The prosecution in the Martha Stewart case got a break from the judge Monday and a slap from Rosie O’Donnell.

The government’s star witness, former brokerage assistant Douglas Faneuil, can take the stand today, Judge Miriam Goldman Cedarbaum ruled, relaxing a one-week delay she had imposed last week at the urging of defense lawyers.

As for O’Donnell, the boisterous TV personality visited the packed federal courtroom to lend support to her friend Stewart and accuse the government of singling out the lifestyles tycoon for fraud and obstruction-of-justice charges.

“I don’t think there’s any way, shape or form she ever would’ve been prosecuted if she weren’t a woman,” O’Donnell declared to reporters Monday afternoon during a break in the proceedings. In the courtroom, O’Donnell sat in the front gallery row right behind the defense table and next to Stewart’s adult daughter, Alexis Stewart.

Also Monday, the jury of eight women and four men heard the first testimony about Stewart’s personality from a witness who described her typical telephone manner as “very hurried and harsh and direct.”

The witness, Emily Perret, had been executive assistant to Samuel D. Waksal in 2001 when he was chief executive of biotech firm ImClone Systems Inc. Stewart, who socialized with Waksal, phoned his office as often as three times a week, Perret testified.

On Dec. 27, 2001, Stewart phoned, trying to reach Waksal. Perret left Waksal a message reading, in part: “Martha Stewart, something is going on with ImClone and she wants to know what.”

Prosecutors contend that Stewart, 62, sold her 3,928 ImClone shares that day because Faneuil had passed her a tip that Waksal and family members were “desperately” trying to unload their stock. Stewart’s sale came a day before a negative regulatory ruling.

Waksal is serving seven years in prison for insider trading.

Faneuil, 28, is expected to testify that his former Merrill Lynch & Co. boss, stockbroker Peter E. Bacanovic, directed him to give Stewart the tip.

Bacanovic, 41, is Stewart’s codefendant. Prosecutors say the two concocted a story that they had a previous agreement to sell her stock if its price fell to $60 a share, as it did that day.

Faneuil had been slated to testify Thursday. But Cedarbaum agreed to give defense attorneys an extra week to prepare their cross-examination, ruling that the prosecution had unfairly withheld information that might damage Faneuil’s credibility. The judge modified her order Monday, noting that it was unlikely Faneuil’s cross-examination would begin until Wednesday.

Marvin G. Pickholz, one of Faneuil’s lawyers, said the delay reminded him of the way that football teams often call a timeout to put extra pressure on their opponents’ kicker before a crucial field-goal attempt.

Following Perret on the stand Monday was Brian Schimpfhauser, the Merrill Lynch surveillance official who first spotted the suspicious trading activity in the brokerage accounts of Stewart, Waksal and two of his daughters.

Schimpfhauser sat in on a Jan. 3, 2002, interview with Faneuil in which he told Merrill Lynch executives that he understood that Stewart’s sale had been for tax-planning purposes. Faneuil repeated the story in a telephone interview with Securities and Exchange Commission investigators, Schimpfhauser testified.

Faneuil later recanted this story and, under a plea bargain with prosecutors, agreed to testify that the real reason for Stewart’s sale was that the Waksals were selling.

Schimpfhauser attended Bacanovic’s interviews four days later with Merrill Lynch and the SEC. Bacanovic told questioners that the sale was in accordance with his and Stewart’s previous arrangement to sell at $60, Schimpfhauser testified.

Bacanovic also told investigators that he personally had spoken with Stewart that day, Schimpfhauser said. Prosecutors contend that that was a lie, and that the two had no conversations on that day.

O’Donnell, meanwhile, was just the latest celebrity to stop by the Stewart trial. Last week, actor Steve Harris, a star of the ABC-TV drama “The Practice,” sat in the gallery with Stewart’s family and friends. Harris is a friend of Stewart’s lead defense lawyer, Robert G. Morvillo.