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Martha's defense begins its case
Defense case to get underway Monday, after dismissal hearings.
February 22, 2004: 8:39 PM EST

NEW YORK (CNN/Money) - The defense is expected to call more witnesses in the obstruction of justice trial against Martha Stewart and her former stockbroker Peter Bacanovic when court resumes Monday morning, but not before the judge has made a key ruling on the securities fraud charge.

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Mariana Pasternak, prosecution witness against Stewart, backpedals saying she may have thought statement she previously attributed to Martha. CNNfn's Allan Chernoff reports.

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The prosecution rested its case Friday after a close friend cast doubt on testimony damaging to Stewart and the judge heard dismissal arguments.

Martha Stewart's lawyers Friday got prosecution witness Mariana Pasternak to cast doubt on a damaging statement she had attributed to Stewart in her testimony only a day before in the federal case revolving around Stewart's sale of ImClone (IMCL: Research, Estimates) stock.

Earlier in the day, Pasternak, who was traveling with Stewart on a private jet the day Stewart placed her order to sell nearly 4,000 ImClone shares, had said that Stewart told her she had sold her shares and that ImClone founder Sam Waksal and his family were also dumping shares.

Earlier today, Mariana Pasternak was misquoted in this story. CNN/Money regrets the error.

Pasternak Thursday testified that Stewart said, "Isn't it nice to have brokers to tell you those things." But Friday, when questioned by Stewart lawyer Robert Morvillo, Pasternak admitted that she may have thought those words herself rather than hearing them from her friend.

"I do not know if Martha said that or if I thought those words," she said.

Detail from a Merrill Lynch worksheet introduced as evidence.  
Detail from a Merrill Lynch worksheet introduced as evidence.

But when federal prosecutors then questioned her again on the statement, Pasternak again stood behind it, saying that while her recollection was vague, "My best belief is that she (Stewart) said it."

Earlier Friday the judge told the jury they could not consider the statement in question in relation to the conspiracy charge against Stewart's co-defendant, Peter Bacanovic, who was both Stewart's and Waksal's broker at Merrill Lynch at the time of the December 2001 stock sale.

Pasternak did not recant that Stewart told her about selling her shares after finding out about Waksal selling his stock. Waksal, who was also a friend of Stewart, is serving a seven-year prison term after pleading guilty to charges of trying to sell ImClone stock a day before a negative announcement of FDA action on its key drug became public and sent shares tumbling.

Stewart and Bacanovic have maintained the shares were sold due to a pre-existing arrangement between the two to sell if ImClone's share price fell to $60.

Thursday Pasternak testified that Stewart told her on a trip to Mexico and Panama that Waksal was trying to sell his stock along with his daughter's. Pasternak on Friday also said that when talking about her sale of ImClone shares, Stewart sounded "regretful" due to her friendship with Waksal.

Pasternak told the court that the conversation between her and Stewart occurred sometime between Dec. 28 and Dec. 30, 2001, only a few days after her stock sale on Dec. 27, 2001.

The testimony of Pasternak, who has been a friend of Stewart for over 20 years, appeared to be one of the most damaging testimonies to the defense team.

Defense begins case

After Pasternak's testimony was complete, U.S. District Judge Miriam Goldman Cedarbaum listened to motions to dismiss the charges, particularly count nine of the indictment, though she didn't make any rulings Friday. She'll hear more discussion about dismissing the charges, and make a ruling, between 9 a.m. Monday morning and when the jury comes in at 10 a.m.

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The ink used to write,$60, next to ImClone on broker's worksheet was different from that used elsewhere on the worksheet, according to an ink expert. CNNfn's Allan Chernoff reports.

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"I would like to ask the government to marshal evidence on intention to defraud, which is an essential element of the charge," the judge stated, adding that particular charge was "the most problematic."

Stewart's attorney Morvillo indicated to CNNfn's Allan Chernoff Thursday that he would try to get several charges thrown out, saying "All defense attorneys always try to throw out all counts."

Morvillo hinted Thursday that Stewart may take the stand, but Bacanovic's attorney David Apfel Friday called the defense's first witness.

Related Links
Stewart's Employment Agreement at Martha Stewart Living Omnimedia Inc.
Court Ruling Dismissing 'Selective Prosecution' Defense
Superseding Indictment (U.S. v. Stewart and Bacanovic)

Kenneth Raimin, a friend and client of the former Merrill Lynch stockbroker, testified that Bacanovic was a conscientious broker and had never discussed other clients with him.

Pasternak was the last big witness against Stewart. The prosecution also called two friends of Bacanovic's assistant, Douglas Faneuil, who was the key government witness. Faneuil earlier testified that following the instructions of Bacanovic he notified Stewart of the sales of ImClone stock by the Waksal family.

The first of those two friends of Faneuil, Zeva Bellel, testified that Faneuil told her in January of 2002 about being ordered to let Stewart know about the Waksal family stock sales. She also testified Faneuil was upset because he knew that Bacanovic was lying to investigators when he told them about an agreement with Stewart to sell the shares at $60.

Martha Stewart
Martha Stewart Living Omnimedia Incorporated
Peter Bacanovic
ImClone Systems Incorporated

"He was at a loss," Bellel said about Faneuil. "He felt betrayed and abandoned because he knew what Peter had just described was totally inaccurate."

Stewart, the founder and former CEO of Martha Stewart Living Omnimedia (MSO: Research, Estimates), and Bacanovic are charged with lying to cover up the real reason she sold 3,928 shares of ImClone Systems only one day before the government refused to review the company's application for a new cancer drug, Erbitux.

In addition to obstructing justice, Martha Stewart is charged with securities fraud.

She could face up to 30 years in prison while Bacanovic could be sentenced to 25 years if convicted on all counts, according to the U.S. Attorney's office.  Top of page

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