Skip to main content

Updated from 12:55 p.m. EST

Defense lawyers in Martha Stewart's criminal trial produced testimony Monday that backed up her claim to have sold

ImClone Systems

in December 2001 because it was falling in price -- not because of selling by its chief executive.

But prosecutors won a victory as well when a lawyer said the broker's clerk who supposedly tipped Stewart to that selling was frightened and confused in the weeks following the ImClone transaction.

Monday afternoon's session in the obstruction and securities fraud trial featured testimony from Heidi Deluca, a five-year employee of Stewart who managed various aspects of her personal business dealings. Deluca said she had conversations in early November 2001 with co-defendant Peter Bacanovic, Stewart's former

Merrill Lynch

broker, about the danger of owning ImClone's stock.

"He felt ImClone was a dog," Deluca said, quoting Bacanovic, who took over Stewart's brokerage account in 2001 from a different firm. "The stock was volatile when the shares came over from Morgan Stanley to Merrill. He said he felt he could set a floor price of $60 to $61."

Scroll to Continue

TheStreet Recommends

That statement could buttress the story of Stewart and Bacanovic, who claim they had an informal agreement to sell Stewart's roughly 4,000 ImClone shares when it fell below $60. The government believes that story is a lie, and that Stewart sold after Bacanovic ordered his assistant to tell Stewart about efforts to sell by ImClone founder Sam Waksal, another Bacanovic client.

Earlier, the assistant, Douglas Faneuil, was portrayed by his former lawyer as emotional and worried in the wake of the transaction -- an account consistent with prosecutors' contention that Bacanovic tried to intimidate Faneuil into lying.

"He told me he's afraid of them all, that they were merciless, immoral people," Gutman said of a March 2002 meeting with Faneuil, whose account of the stock sale were closely scrutinized by his employer and government investigators.

Defense attorneys Robert Morvillo and Richard Strassberg have tried to show Faneuil's story has changed -- something Assistant U.S. Attorney Karen Seymour conceded in her opening arguments, when she called Faneuil "an admitted criminal." He is charged with a misdemeanor count of lying to federal investigators and hasn't been sentenced.

Gutman said he gave Faneuil his boilerplate advice: "As I tell all witnesses and all clients, tell the truth." Gutman also said he sought to reassure his client that Merrill Lynch lawyer David Marcus was trying to insulate the brokerage's employees from the consequences of an investigation by the

Securities and Exchange Commission.

"I told Faneuil that Marcus had told me he was working on something with the government, that he thought the whole investigation would go away and there would be nothing to worry about," Gutman said of a January 2002 meeting with Faneuil.

The defense was unable to show that the 80-year-old lawyer encouraged his client to lie or change his story, and Gutman said he warned Faneuil of potential problems if his account changed. "If he were to make a statement different from the one before then he's sticking his neck out," Gutman said.

Earlier, U.S. District Judge Miriam Goldman Cedarbaum heard requests from the defense team to throw out the securities fraud charge against Stewart and dismiss the charge that she and Bacanovic conspired to cover up the circumstances of the ImClone trade.

The judge issued no ruling but will consider the request.