Paper Chase in Martha Trial

In evidence was a Jan. 22, 2002, email to Blatt from Andrew Nussbaum, a partner in the corporate division of the high-profile Manhattan law firm of Wachtell, Lipton, Rosen & Katz. "On MS/Imclone matters, John Savarese will assist," it reads. Savarese is a partner in the firm's litigation division who eventually accompanied Stewart to her Feb. 4, 2002 interview with Securities and Exchange Commission attorneys.

Under cross-examination by defense attorneys, Blatt conceded that the company was worried when stories about the stock trade started to appear in June 2002. "We were very concerned with the negative publicity," Blatt said. "It was having a reaction on advertisers and potential business partners." Still, Blatt said, despite his "persistent" efforts to write a press release, Stewart's attorneys never called him back. A release went out close to a week later.

Stewart had appeared less vulnerable to the securities fraud count after Judge Cedarbaum last week barred prosecutors from calling expert witnesses who would have testified that Stewart's proclamations of innocence would have affected the actions of Martha Stewart Living investors.

Stewart and Bacanovic also are on trial on charges of obstruction of justice, for allegedly lying about the sale, which came on the heels of frantic efforts to dump the stock via Bacanovic's office by the family of ImClone founder Sam Waksal.

The obstruction count is the less-serious offense from a sentencing perspective. But it looked to be the more viable after defense lawyers produced little to back up their claims that Stewart sold her shares under an informal stop-loss agreement with Bacanovic.

On Tuesday, prosecutors introduced a number of emails they said showed Stewart to be a demanding client who might have intimidated Bacanovic. They want to show that Bacanovic's fear of the domestic entrepreneur might have led him to break the law for her.