Stewart’s Defense to Call Only One Witness -- and Not Her

Martha Stewart won’t testify in her own defense, opting to take her chances with the jury after calling just one witness, her lawyer said Tuesday.

The witness, a former lawyer for Stewart, will testify for about 15 minutes, attorney Robert G. Morvillo told the judge in the federal fraud and obstruction of justice case, now in its fifth week.

Codefendant Peter E. Bacanovic, Stewart’s former Merrill Lynch & Co. stockbroker, called his last witness Tuesday afternoon and also will rest his case today without taking the stand, a spokesman for his defense team said.

Stewart’s minimalist defense is “a prudent, play-it-safe option,” said former prosecutor Christopher J. Bebel, now a defense lawyer at Sacks Bebel & Boll in Houston.

Although staying silent could cost Stewart some points with a jury that is eager to hear her story, Bebel said that consideration was outweighed by the risk of exposing her to cross-examination by prosecutors who “would do everything to bait her and try to provoke outbursts.” Trial testimony suggests that Stewart has a sometimes-volatile temper.

The suspense-breaking disclosure that neither defendant would testify came at the end of a day that provided new details about Stewart’s expense-account habits during cross-examination of a key defense witness.

Prosecutor Michael S. Schachter attacked the memory of Stewart’s business manager, Heidi M. DeLuca, who had testified Monday that she recalled a Nov. 8, 2001, phone conversation in which Bacanovic said he would try to persuade Stewart to sell her ImClone Systems Inc. stock if it ever fell to $60 or $61 a share.

DeLuca’s account had bolstered the defense’s contention that Stewart unloaded 3,928 ImClone shares on Dec. 27, 2001, because of a prior arrangement to sell at $60.

Prosecutors say the real reason for Stewart’s sale was that Bacanovic ordered his assistant to pass her a tip that ImClone founder Samuel D. Waksal was trying to dump his own stock in the biotech company. A day after Stewart’s sale came a regulatory setback that caused ImClone shares to plunge.

The government accuses Stewart and Bacanovic of inventing the $60 sale agreement as a cover story.

In his cross-examination Tuesday, Schachter questioned whether DeLuca’s phone call with Bacanovic didn’t actually come two weeks earlier, when they were discussing ImClone stock in an entirely different context -- that of Stewart’s pension fund, which that fall held 51,800 ImClone shares.

Schachter displayed an undated document -- introduced by the Bacanovic defense -- listing some of Stewart’s stock holdings. At the bottom, DeLuca had jotted in pen: “ImClone $61.52 Wednesday.”

DeLuca had testified that she made the note Nov. 7, a Wednesday, a day before the conversation with Bacanovic in which he said he would try to persuade Stewart to sell when the stock hit $61 or $60. The $61.52 related to where the stock had been trading Nov. 7, DeLuca said.

But then Schachter, in the trial’s closest thing yet to a Perry Mason moment, brandished the original version of the document, which prosecutors had obtained from Stewart’s company under subpoena. Unlike the defense’s version, this one carried a date in the right-hand corner: Oct. 24, 2001, also a Wednesday.

Schachter then introduced records of a Bacanovic-DeLuca phone call Oct. 24 from 2:19 to 2:40 p.m., plus an official stock market record from that date showing that in the middle of their call -- at 2:30 p.m. -- ImClone shares traded at $61.52. He also demonstrated that around that time, Stewart had been pondering the sale of the 51,800 ImClone shares in her pension fund, which occurred Oct. 25 and Oct. 26 at an average price of $61 a share.

Still, DeLuca insisted that she had had separate conversations with Bacanovic and had written the note the day before the Nov. 8 call -- even if it was written on what proved to be an Oct. 24 document.

The dates are important because the Nov. 8 date is central to DeLuca’s contention that she and Bacanovic were talking about the 3,928 ImClone shares in Stewart’s personal account -- not the ones in her pension fund that had been sold in late October.

Later, one of Bacanovic’s lawyers attempted to repair the damage by introducing evidence that ImClone shares also had traded in the same range Nov. 7.

During Schachter’s cross-examination, DeLuca also disclosed that Stewart and her close friend Mariana Pasternak had billed the cost of their luxury vacation in Mexico and Panama to Stewart’s company.

The trip, which began on the day Stewart sold her ImClone stock, included a stay at a $1,500-a-night suite in a Baja California resort, with day trips, spa treatments and meals.

DeLuca testified that she had no authority to question items on Stewart’s expense accounts but simply put in the expenses as Stewart directed her.

DeLuca also acknowledged under Schachter’s questioning that she received a $20,000 pay raise in 2002, to $92,000 from $72,000 -- an increase of 27.8%. The prosecutor was trying to imply that it was a payoff for supporting Stewart’s story, but under redirect questioning from Bacanovic’s lawyer, DeLuca said it was a normal raise and that she had received raises and bonuses every year she worked for Stewart.

Stewart’s lone defense witness is Stephen Pearl, a former lawyer for her who took notes during her Feb. 4, 2002, interview with federal investigators. The defense hopes to cast doubt on the testimony of an FBI agent whose own notes were crucial to the charge that Stewart lied to the government.

Lead prosecutor Karen Patton Seymour said the government would present a brief rebuttal case -- one or two witnesses -- and probably would be finished by the 1 p.m. lunch break.

U.S. District Judge Miriam Goldman Cedarbaum has yet to rule on defense motions to dismiss some or all of the charges. She said she wanted to hear more arguments from each side and would make her decision at the end of those arguments -- probably this afternoon.

Cedarbaum also held off a decision on how to schedule closing arguments, which the defense and prosecution agreed would take a total of two days. Although she has been in the habit of giving the jury Fridays off, she could schedule closing arguments for Thursday and Friday, then give her charge to the jury Monday. However, Cedarbaum added that she was reluctant to put a weekend between closing arguments and her charge, so she might push everything to next week.