Updated from 12:11 p.m. EST

Government lawyers tried to cast doubt on the testimony of Martha Stewart's business manager Tuesday, suggesting in a cross-examination that she couldn't clearly remember the facts surrounding a recommendation by Stewart's broker to sell

ImClone Systems

(IMCL)

when it fell through $60 in late 2001.

Heidi DeLuca testified Monday about a Nov. 8, 2001, conversation in which Peter Bacanovic, Stewart's co-defendant and former

Merrill Lynch

broker, supposedly referred to ImClone's stock as a "dog" that should be unloaded at $60 or $61. The contention was seen as crucial evidence backing the pair's claim that Stewart sold the stock under an informal stop-loss agreement with her broker.

In their cross examination, prosecutors tried to portray DeLuca's memory as hazy and possibly wrong -- or maybe even fabricated. Part of DeLuca's testimony was that she had made a notation the day before Bacanovic's Nov. 8, 2001 phone call in which she listed ImClone's price as $61.52 -- just north of broker's supposed "floor" for the shares.

On Tuesday, government lawyers pointed out, and DeLuca confirmed, that ImClone was also trading at $61.52 on Oct. 24 -- the day she had another phone conversation with Bacanovic in which they discussed strategies to reduce Stewart's tax burden.

Assistant U.S. attorney Michael Schachter produced a phone log showing that DeLuca was on the phone with Bacanovic's office starting at 2:19 p.m. EST that day. Prosecutors hope jurors will conclude DeLuca conflated the two conversations, and is misremembering -- or making up -- Bacanovic's sell recommendation.

Stewart eventually did sell roughly 4,000 ImClone shares at around $60 on Dec. 27, 2001, one day before a regulatory setback gutted the shares and ignited the now infamous trading scandal.

The government claims Stewart sold after receiving a tip, given at Bacanovic's behest, that ImClone's founder was trying to sell his stake in the firm. She and Bacanovic are charged with obstruction of justice for allegedly inventing the story about the stop-loss agreement to cover that up.

Bacanovic's lawyer David Apfel had difficulty resurrecting his client after DeLuca's testimony. Apfel called John Maine, a former Smith Barney stockbroker, to note the prices of ImClone stock on Nov. 7, 2001, but Maine was only able to offer a range of $61.50 to $61.83, not an actual trade at $61.52.

Jacob Zamansky, a lawyer who often represents shareholders in litigation against publicly traded companies, said Deluca's recollections are key to Stewart's story to have sold the shares under an informal stop-loss agreement with Bacanovic.

"This was the most telling moment so far in the trial," Zamansky said after the morning session. "The cross-examination was devastating. The government clearly showed that she made a significant error in her recollection about her conversation with Bacanovic about the $60 sale, or worse, may have concocted a story."

Bacanovic's lawyers told Judge Miriam Cedarbaum they intend to rest their defense Wednesday.

Martha Stewart's lawyer, Robert Morvillo, told Judge Cedarbaum he will only have one witness in a very brief defense. Providing the lawyers maintain this schedule, summations in the case can start as early as Thursday.