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Mistrial denied in Martha case
Stewart's attorney says the case is really about insider trading, but the judge disagrees.
February 11, 2004: 4:48 PM EST
By Allan Chernoff and Mary Snow, CNNfn

NEW YORK (CNN/Money) - The ninth day of the Martha Stewart trial opened with a bang Wednesday as her lawyer asked for a mistrial, but the federal judge overseeing the case promptly denied the motion.

The defense team also tried to tarnish the credibility of a Securities and Exchange Commission lawyer who questioned Stewart in 2002 about her sale of ImClone Systems stock.

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Stewart's assistant, Ann Armstrong, provides damaging testimony. CNNfn's Allan Chernoff reports.

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Stewart's lead attorney, Robert Morvillo, said the government's charges, which include reference to a "secret tip," were really about insider trading, meaning he should be allowed to try to exonerate Stewart by showing such trading never occurred.

"I have the right to prove a lack of motive by proving there was no insider trading," Morvillo told the court shortly after the day's proceedings began.

"You're saying this trial is being transferred to an insider trading trial?" Judge Miriam Goldman Cedarbaum asked. "You read a secret tip as insider trading. That's not a ground for dismissing the indictment," she said, denying the mistrial request.

The surprise move by Morvillo came right before an SEC investigator took the stand for a second day to discuss Stewart's first meeting with regulators on Feb. 4, 2002, about her now well-known sale of ImClone stock.

Helene Glotzer, assistant regional director at the agency, said Tuesday that Stewart claimed she had no recollection of being told ImClone founder Sam Waksal was selling his stock prior to her stock sale on Dec. 27, 2001.

In the February meeting, Stewart said she and her stockbroker, Peter Bacanovic, had a prior agreement to sell her 3,928 shares of ImClone when the stock price fell to $60, Glotzer told the court.

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Stewart's message log

The SEC investigator said that when she asked Stewart about a telephone message from Bacanovic, Stewart said she didn't know whether the message had been recorded in the computerized log.

When Morvillo cross-examined Glotzer on Wednesday, Glotzer said Dave Marcus, a lawyer at Merrill Lynch, told her that Stewart's stock trade had nothing to do with Waksal's.

Glotzer testified that Marcus said Stewart's ImClone sale was one of many trades she made in the final week of December 2001.

And, in an attempt to discredit the government's witness as biased, Stewart's attorney asked Glotzer if it's her hope that the government wins the case.

"Yes, I believe in the case," Glotzer answered.

Tape of Bacanovic's meeting with the SEC

The prosecution played an audio tape after Glotzer's testimony Wednesday, detailing an interview the SEC conducted with Bacanovic back in 2003 about Stewart's stock sale.

The former Merrill Lynch broker told regulators on the tape that he couldn't recall who -- either himself or his assistant Doug Faneuil -- had placed a call to Stewart, but he said a message was left with her assistant, Ann Armstrong, to ask Stewart to return the call.

When Stewart did return the call, Faneuil gave her the share price of ImClone, and Stewart asked to sell her remaining shares based on that stock price given by his assistant, Bacanovic told the SEC on the tape.

"I do not discuss my clients affairs with other clients," Bacanovic said on the tape, referring to the SEC's accusation that he had shared the information about Waksal's ImClone stock sale to Stewart. "I did not get to be a first vice president at Merrill Lynch by discussing other people's business," he added.

Testimony: Message changed

Armstrong testified Tuesday that the home decor expert personally changed a Dec. 27, 2001, phone message from Bacanovic telling her that ImClone stock would start falling, but then changed the message back.

Stewart's assistant, who broke down in tears Monday as she started testifying against her longtime boss, showed more composure in her second day of testimony at the obstruction of justice trial of Stewart and Bacanovic, who are charged with lying to investigators about the reason for Stewart's sale of ImClone shares.

Armstrong testified that Stewart went to Armstrong's computer terminal on Jan. 31, 2002, and asked to see the phone messages for Dec. 27, the day of the sale.

"She highlighted from the end of Peter's name and then she started typing over that," Armstrong testified in response to questions from a government prosecutor. Armstrong said Stewart typed "re: ImClone" in place of the message.

Shortly afterward, however, Stewart ordered Armstrong to change the message back to the original one and then to call Stewart's son-in-law, who is a lawyer, Armstrong testified. Armstrong added that she had never seen Stewart alter a phone message before that day.

Federal prosecutors hope Armstrong's statements will show that Stewart sought to cover up details about her ImClone trade.

The government says Stewart sold because of inside tip -- passed from Bacanovic through Faneuil to Stewart -- that ImClone founder Sam Waksal was trying to sell that day. Stewart and Bacanovic say they had a long-standing pact to sell ImClone stock if the shares fell below $60.

Armstrong said Tuesday that after Martha spoke with her son-in-law, he later called Armstrong to talk with her directly and they discussed what the secretary should do with the message.

Faneuil, the government's star witness, ended his testimony in the obstruction of justice trial Monday. Faneuil has pleaded guilty to a misdemeanor for his part in the scheme and agreed to testify about Stewart's sale, and much of the government's case will hinge on whether jurors believe him.

Over four days on the witness stand Faneuil has told jurors repeatedly that he gave Stewart the tip that Waksal and members of his family were trying to sell.

But Monday he conceded that he never discussed a cover-up with Stewart and she never encouraged him to lie about their conversation.

"You were never asked by Martha Stewart to commit a crime, were you?'' asked Morvillo, Stewart's attorney and a respected veteran white collar defense lawyer, according to Reuters.

Faneuil replied that Stewart never spoke to him about covering up the stock tip.

Stewart, the lifestyle expert who founded Martha Stewart Living Omnimedia (MSO: Research, Estimates), faces 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.

Waksal is serving a seven-year prison term after pleading guilty to charges of trying to sell ImClone (IMCL: Research, Estimates) stock a day before a negative announcement started the shares tumbling.  Top of page

-- with CNNfn's Kelly Marshall and staff and wire reports

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