Reason Magazine - Staff

Martha On the Inside

info@reason.com (Elizabeth Koch) — Thu, 07 Oct 2004 00:00:00 EDT

Dear Martha,

You don't know me by name. I'd be shocked if you recalled my face—the few glances we exchanged during your spring trial were fleeting at most. I know your time is precious, so I'll cut the introduction and jump straight to my mission. I'd like to help. If you'd be so patient, Ms. Stewart, as to let me walk in your shoes awhile. I have a thought or two to share.

Tomorrow, October 8, 2004, is your big day. At precisely 9 a.m. your doorbell will ring. Your driver will greet you warmly (you'll remind him of an orchid, bundled in your cashmere throw, your hair blown silky, and your skin just as smooth). He'll escort you to the car (right side, he knows you get carsick lodged behind the driver seat) and drop your Louis Vuitton duffle in the trunk (you won't need much, he hears, where you're going). You won't look back at your ivy-shimmered farmhouse, or glimpse out the passenger windows as Westford, Connecticut whizzes by. When your company jet lifts off from Teterborough's private runway, your stomach will do its usual flips, and you'll curse the second breakfast latte you failed to resist. But these aren't your regular jitters, for the Alderson Federal Prison Camp ain't a beach in Saint-Tropez.

Jail tips float through cyberspace like dander you'd be wise to swat from your face. While mowing down your kitchen mates with the spaghetti cart isn't advisable (these are not your employees, dear Martha), my counsel isn't so specific. Let's span back, reflect a bit—not on Omnimedia, or the speed of your journey from homespun cookie caterer to billionaire arbiter of life's Good Things, or your beloved puppies, cockatoos, and chickens. But on the people. On the types you repel and attract. Wincing yet? Just wait.

The characters in your trial (who rather acted as character witnesses) may seem uniquely rotten, as if Lady Luck heaped all the putrid apples in your aproned lap. Not true. Open any psychology textbook; you'll find profiles of each and every one, which means you'll meet them all again. Repeatedly. As long, that is, as you're You (a Forbes-listed, high-society kitchen Picasso) and people are People (parasitic ass-kissers hoping your ilk will choke to death on a drumstick). Forgive me—my cynicism is indelicate. But judging from your megalomaniac fibbing (yes, yes, I know, the investigation was petty in light of the mighty Martha brand name), and genuine horror at the Lilliputians who dared rat you out (the only one-woman conglomerate in human history!)...well, your judgment seems a little off.

In prison, you'll need that intuition—even more than Sisley eye créme. Somewhere between buttoning your registration khakis and tying your work boots, expect to be flanked by listless prisoners anxious to sympathize with your cavity-search—not to mention sniff a little green. Notice that one woman hangs back, patiently granting her ward mates the first fill. Something about her hennaed hair and bruisey face-lift will seem mnemonic, simultaneously comforting and perturbing, like a nostalgic itch. She'll study your face, the wince beneath your botoxed brow, and finally skulk in your direction.

"Looks like Morty Zuckerman's hit a few Daily News snags, huh?" she'll say rapidfire, fooling you into thinking she lived the gossip instead of lifting it from Gawker. "Tressa," she'll add, offering a clammy hand and Cheshire smile. You're hooked.

She'll teach you things, at first. Sun salutations and guided meditations ("Think of saffron sunsets on Peruvian beaches; of 1000-thread, air-dried Frette sheets. Ooooom."). She'll massage your aching, gravy-ladling shoulders, give you pedicures with smuggled gardening sheers. She'll copy your work-boots' toothpick-stenciled daisies, the way you knot bandanas into hats. You'll assume she admires your good, wholesome obsession with self-improvement.

Oh Martha. Get your head out of your wilting backyard bouquet and pay attention to intuition. This Tressa woman's scent, it's reminiscent for a reason. Have you forgotten Mariana Pasternak, monikered "Best Friend" in court transcripts? You truly never saw it coming—her hideous trial hiccup, the unseemly string of words she shook from a Xanax memory—isn't it nice to have brokers who tell you such things? This time, look harder.

What do you imagine Tressa wants from you? What makes this lady tick? Your answer is obvious; it's tracked across her forearm. No, those scabs aren't from mattress chiggers. Where there's a user, there's a supplier, and considering the limited traffic through Alderson Correction Facility, I'd blame a guard. Starting with the Chappell Hartridge look-alike.

By now the rumors will have reached you. The baton-wielding bulldog likes to spring without warning. His history, let's say, resembles that of your jury's angry, pot-bellied spokesman—a wife-beating, Tonka-flinging petty thief of Little League funds and his momma's antique mink—but on the cellblock he's lord of a thousand broken ladies, many born under brighter stars than he. Sure, messing with you would be running a risk, but he likes the odds on his return.

Put the two together, Martha. Translation: don't follow Tressa behind dumpsters—especially if her neck's jerking like she's suddenly developed Tourettes. Back away, make a bee-line for the basketball bench. Better to risk getting trampled underfoot than suffer a self-hating man's cruel baton tricks.

Yeah, I know. People are often hard to predict. As you discovered last spring, even the meekest, most Biblical do-gooders are known to ditch loyalty in favor of...excuse me for saying it...the truth. What better proof than Ann Armstrong, your reflexively meticulous assistant for half a decade? After all, her courtroom description of your plum pudding bonus incited a show-stopping torrent of tears. Assuming her hysterics were an empathetic reflex (rather than fear of your eye-plucking talons), its clear her identity hinges on yours. Why in heavens would a shivering, pasty-cheeked, thirty-something dowager betray Martha Kostyra Stewart?

Perhaps, Martha, you're just too much to handle. Perhaps your intolerance for improperly stapled faxes and unfolded toilet paper tails induced dementia in your helpmates. Problems in the real world mean problems in the slammer, whether or not you're backed by Peter Bacanovic's doppleganger.

Let's say you find a new Bacanovic. Pluck a She-Peter from you cellblock and put her to good use. As a loyal servant, she'll happily receive your weekly UPS delivery—Vicodin-sprinkled lemon bars, meant to shrink your throbbing temples—in her name.

The thing you must remember, Martha, is celebrity minions get cravings of their own. Especially glamour girls with prima donna ballerina aspirations, which is a fair description of She-Peter—nevermind her thick, hairy ankles. She's angling to dance in Alderson's Thanksgiving talent show, and needs to practice her pli�s before flag football monopolizes the gym. So she does what any real artist would—dumps her duties on her own anemic sidekick. Which is how Fannie—we'll call her Fannie—becomes your gofer.

From day one, Fannie will rub you the wrong way. During landscaping duty, something about her sycophantic "Yes, ma'am, no ma'ams" is intolerable. You're apt to stab your weed-whacker in the dirt and scream, "Shut up, shut up, you stupid shit! Get out of my way!" You'll be damned if some scrawny Tinkerbell ruins your single peaceful chore. What's more, she's continuously tripping on your lunch chair, no doubt merely to enrage you. Doesn't she know her manners? Precisely two inches must be kept between the cafeteria table and yourself. Which means it's her fault when grape juice splashes on your hunk of chocolate cake. Why not swipe hers?

I'd warn against that. But you're such an indignant diva—what's the use?

Fannie, of course, wants to be caught. Fair is fair, Ms. Martha, and you've humiliated her enough. While you're busy knitting in the craft room, Fannie will grow a set of nuts. She'll wear your package like a nomad carrying grain, and slide, spread eagle, down the stairwell railing. Ann II will gasp, practically weeping, as Fannie crashes at a bend and your pastry box goes sailing. Plunk. Clean-up duty is a race between Ann and the warden's drug-sniffing Doberman.

When will the obvious become obvious to you? Pawning off dirty work will only land you in the cooler—and guess which guard's on tank duty?

Keep ignoring trial wisdom, Ms. Martha, and expect to keep on getting screwed. My advice is simple. While in prison, forget about perfection. Try being human. Listen to your criminal sisters, empathize with their unpaid mortgages, their gruesome homeless years, their asthmatic children now living with chain-smoking ex-husbands. We already know that you're an icon, a one-woman media conglomerate, and that $48,000 is a mere .0006 of your net wealth. Likening yourself to "the poor old tortoise who quietly plods along, building something of great value" seems a little silly, in light of your recent Page Six photo op with P. Diddy. Humility, Martha. Don't forget your New Jersey, working class roots, when obsessing over potted plant dirt wasn't a luxury your family could afford.

Aren't you kinda lonely perched at the top, sitting at the farthest reach from failure you could find? What would happen if your soufflé actually fell? Would your friends stop loving you? Have you dropped the goddess act long enough to know?

Next time you're melancholy, or remorseful, or moved, try shedding a tear or two. Let your friends support you like they're supposed to. Your homemaking empire is a good thing, but as your brother Eddie thoughtfully pointed out, prison might be even better. You've got 60-odd years of bitchdom to undo.

Five months probably won't cut it.

Diva Down

info@reason.com (Elizabeth Koch) — Tue, 09 Mar 2004 00:00:00 EST

These are Elizabeth Koch's notes on the Martha Stewart trial.

"Maybe this is a victory for the little guys who lose money thanks to these kinds of transactions," Chappell Hartridge, a 47-year-old computer technician and jury spokesman, announced to the press, cocking his eyebrows and clasping his hands. "Maybe the conviction will give the little guy more confident feelings that I [sic] can invest in markets and get in on the up and up," Hartridge was speaking to reporters after finding Martha Stewart and Peter Bacanovic guilty—of everything. Lying, conspiracy, obstructing justice. And a hell of a lot more. If Judge Miriam Cedarbaum hadn't the foresight to throw out the securities fraud charge, the jury would've slammed that on her too.

If scoring one for the little guy was this jury's priority, the dispensers of justice should have thought a few steps ahead. Or just observed their surroundings. Because from the instant the government made Stewart its corporate fall gal—even without the help of insider trading laws—Martha Stewart Living Omnimedia (MSLO) shareholders have watched their fortunes evaporate. The assortment of charges the SEC stuck Stewart with, albeit flimsy and drifting as post-it notes, was enough to rattle investors and initiate a landslide of company layoffs. After the verdict was announced, MSLO stock dropped from $17 per share to $10.86 in a single afternoon. No doubt it's got a lot further to go. Martha Stewart isn't the one who's hurt the little guy. The government did that all by its lonesome.

I believe Hartridge's comments to the press last Friday were utterly honest. He spoke with assurance, with growing passion and confidence. I thank him for making it clear that the jury found Stewart and Bacanovic guilty of arrogance. "Judging from some of the things they did, I'd say they thought they were special, he said, "like they were better than everyone else." Arrogance is not a noble trait. But if we start convicting people for having crappy personalities, well—a prison complex that immense could only fit on the moon.

Chappell would have been wise to keep his mouth shut. But he couldn't. He was pissed. He had an ax to grind. While reporters stood on tables and chairs, their pens poised to record his every word, Hartridge rattled off a list of Martha Stewart's transgressions. Most had little to do with the actual charges.

Offense Number One: Stewart's stockbroker background. "She should have known better," Hartridge scolds. "The things she did once she felt the heat, not cooperating with the authorities—she should have known what was illegal." The obvious assumption is that she did know better, and didn't care. That she purposely thumbed her nose at the SEC in particular and the law in general, that she—in typical "big wig" fashion—ostentatiously ignored the rules everyone else had to follow. Perhaps Chappell's right to some degree. Martha could very well have rushed her SEC interviews, could easily have appeared huffy and irritable. But for the jurors to conclude beyond a shadow of a doubt that Stewart told boldfaced lies, they'd have to ignore attorney Robert Morvillo's persuasive argument that the government proceedings were shoddy and misleading.

Offense Number Two: The appearance of celebrity supporters, like Bill Cosby, Rosie O'Donnell, and Brian Dennehey. "What did she think, they're supposed to sway our opinion?" Chappell sneered when asked, admittedly insulted and outraged. He seemed to consider the celebrity appearances a deliberate scheme to impress, a cocky bribe to let Martha off easy. "Maybe [Stewart's conviction] will be a message to the big wigs," he says with assurance.

Offense Number Three: Stewart's defense calling one measly witness. "It seemed like they thought they could fool us by [making no effort] to defend her. Like her actions didn't need to be defended." It's true Robert Morvillo's decision was a gamble, one that came off as pompous and condescending. The jury's indignation is perfectly understandable. But to convict, even in part, on the grounds of a perceived slight? Bogus.

Offense Number Four: Stewart's allegedly writing off personal vacations as a business expense. "It's like she thinks she's better than everyone else, that she can do whatever she wants." Sure, if Martha's billing her company for what amounts to luxurious self-indulgence, that's slimy. But the accusation, as Judge Cedarbaum would say, "is neither here nor there"—it has nothing to do with this trial's charges. It's a red herring. Prosecution brought up the vacations as a distraction, as alleged proof of Martha's greedy overconfidence. In any other context, such a fault would be considered a character flaw, a charge we're all guilty of. Does it warrant jail-time? God help us.

Offense Number Five: Mariana Pasternak's "best belief" testimony. If a witness and good friend of the defendant first boldly quotes the accused as saying "Isn't it nice to have brokers who tell you those things," then claims not to remember much about the context, then claims that what she thought was a comment may have been "a string of words in her own mind," how could such a testimony raise anything but doubt? Hartridge, as the jury's voice, says otherwise. He calls Pasternak's belief one of the "strongest pieces of evidence against her."

Offense Number Six: Tampering with Ann Armstrong's message log. "Why would Martha delete Peter's message [that 'ImClone is selling downward'] unless she was trying to hide something?" Hartridge asks. He's right about it being an idiotic move. He's right that something alarmed Stewart enough to edit the note then abruptly change it back. But he's wrong to assume that something was a crime. Consider the culture we're living in, its litigious environment of wildfire lawsuits. So she caught a touch of the paranoids moments after being warned by her lawyer about SEC investigations of December 27 ImClone trades. Who wouldn't? Martha's not stupid. It's possible she went looking for material the government might find suspect, came across that message, realized how it could be interpreted, and panicked. Who in her position wouldn't put on her prosecutor goggles and study every potential piece of evidence through its slanted eyes? It was a rash act, yes. Suspicious even. But does it prove she's guilty, or even that she believes she is? Hardly. Most senseless of all is that the note, the message Stewart temporarily altered, was perfectly legal broker-to-client information. Thoroughly, undeniably, maddeningly legal. Once again, she's not condemned for actual wrong-doing. She's condemned for behaving like a criminal.

Offense Number Seven: Douglas Faneuil's tax-loss agreement story. How the jury members failed to question Faneuil's farfetched accusation—especially in light of his past lies and government deal—is incredible. Were they even listening? "I feel bad for Faneuil because he got pulled into this. From the start he felt like he had no choice," Chappell says, buying the accomplice witness's deposition without so much as puzzling over incentives. Faneuil's tax-loss testimony, as both defense teams repeatedly proved, made no sense. First, Peter Bacanovic knew damn well ImClone sold at a profit and would never have pretended it belonged on Stewart's 2001 tax-loss plan. Second, Martha's business manager Heidi Deluca could not have accidentally alerted Faneuil to the absurdity of his boss's first so-called cover-up in early January. Why not? Because up until February, when she received Merrill Lynch's 1099 form, Deluca believed the ImClone sale went toward the 2002 tax plan. It wasn't until February that Heidi called Faneuil in a fury, weeks after both Bacanovic and Faneuil told compliance officers about the $60 sale agreement. Reasonable doubt smashed this testimony to pieces. The jury looked the other way.

And finally, Offense Number Eight, the truly damning one, the one that's informed all the others: Martha Stewart's reputation. Way before we ever heard the name Doug Faneuil, this woman was widely known: as a crocheting, pottery-throwing, wallpaper stenciling, eyelash-batting control freak bitch. As smug and obsessive and self-absorbed, a tyrant to work for and a pain to work with. As someone who freely dubs her employees "idiots" and "little shits," who hangs up on secretaries and assistants who fall short of her bidding. For decades Stewart's been accused of wanting things her way or the highway, for being dramatic and absurd and roaring like a lion, for making bizarre threats like pulling out of Merrill Lynch if they don't get better hold music. For acting entitled, as if she doesn't have to follow the "little people" rules. And this is precisely what the justice-keepers have charged her with: in short, being a diva.

No one's gonna feel sorry for a jet-setter. No one's about to consider a socialite with five homes, expensed limo service, and her own celebrity television show a victim. Especially if she's a bitch. No one likes arrogance. It's a shitty quality, one that makes employees quit and couples break up and friendships buckle like old tuxedo shirts. That a jury confronted with such a mix of bad personality traits would put the worst possible interpretation on all evidence and behavior is understandable.

But a precedent has been established, or reaffirmed—that the government can walk in and destroy your life; that if you get nervous while dealing with federal investigators on a fishing trip (one in which no criminal charges are ever filed), you'll go to jail; that punishing arrogance is worth demolishing one of the most successful American businesses of the last decade. It's unlikely any actual little guys were hurt by Martha Stewart's 3928-share trade, which earned her $51,000 dollars and her broker a $450 commission. It's inevitable that many Americans will be punished by the government's ever-expanding definitions of criminality and its ravaging of capitalism's most successful products. If you think you're little now, you ain't seen nothing yet.

Martha's Reign of Terror Over the Little Guy Is Over!

info@reason.com (Elizabeth Koch) — Fri, 05 Mar 2004 00:00:00 EST

These are Elizabeth Koch's notes on the Martha Stewart trial.

By 2 p.m., the end of lunch hour, cameramen flood the bottom of the courthouse and security lines the stairs. In the courtroom, the defense and family sit in choked silence, waiting for Judge Mirium Cedarbaum to return from chambers. When the clerk finally knocks—"All rise"—an hour has vanished.

Cedarbaum walks in swiftly, her face stiff and gray, and says without pause, "The jury has reached a verdict."

The jurors take their places, each and every one looking at their shoes, their faces cast in shadows. Cedarbaum reads off Martha's counts with rapid-fire force, "Count one: Guilty. Count three: Guilty. Count four: Guilty. Count eight: Guilty." Guilty on all counts. Stewart's daughter, Alexis, who sat directly behind her every day of the six week trial, drops her head in her hands and shakes. Her estranged husband, John Cuti, Martha's number three defense lawyer, does the same. But Martha—she hardly flinches.

Martha Stewart's convictions are as follows: conspiracy (specifically obstructing an agency proceeding, false statements, and perjury); false statements (two counts); and obstruction of justice. Peter Bacanovic is found guilty of conspiracy, false statement, perjury, and obstruction of justice—he's not charged with making and using false documents. I could not see his face, nor that of his parents. For a moment there is only silence, a thunderous sort of stillness. Cedarbaum thanks the jury and when they stand, reporters rush out. "I must have missed something," says Slate reporter Henry Blodget. I nod. Our blind spot will soon become embarrassingly evident.

When I reach the hallway, I hear someone yelling. Wailing, really. It is Peter Bacanovic's tiny, shrunken mother, jabbing her finger at the New York Post's gossipy opinion writer, Andrea Peyser. "You wanted this all along. He might look good in an orange jumpsuit, but he lost his career and his job and he had no motive." That should be grist for Andrea's mill for months to come.

In the press room, juror number eight, Chappell Hartridge, a computer technician from the Bronx, is kind enough to stick around and clarify their decision.

"Maybe this is a victory for the little guys who lose money thanks to these kinds of transactions. Maybe it's a message to the big wigs." Frankly—and stupidly—this kind of emotion surprises me. Yes, on day one the jury seemed to buy into prosecuting attorney Karen Seymour's Disney movie good vs. evil opening argument, but in the days that followed its members appeared genuinely conscientious and attentive. At this point, one thing's for certain—they took each witness's testimony, and every piece of evidence the prosecution put forth, at its surface value, without bothering to look a little deeper. By that I mean the statements of Douglas Faneuil, Ann Armstrong, and even the befuddled Mariana Pasternak.

In response to whether Faneuil's testimony was the defining factor, Chappell says, "We did not take Faneuil's testimony for gospel. I kept an open mind because he had an agreement with the government, but I didn't think he was slick on the stand. I felt bad for Doug [my italics] because he got pulled into this from the start and he felt like he had not choice [but to follow his boss's orders]." As for Mariana Pasternak, it came down to the misleading statement the judge allowed the jury to sleep on before cross. Chappell continues, "The fact that she said, 'Isn't it nice to have brokers who tell you those things?' That's pretty persuasive."

"But what about when she said she wasn't sure about that?" a reporter shouts. "She said it could have been a thought."

Chappell blinks at her for a minute. "Well, that wasn't the only thing. It was also other evidence."

"Like what?" we all shout in unison.

"Ann Armstrong's testimony was probably the strongest. There had to be a reason Martha was trying to delete that message [that ImClone was selling downward]. I mean, if the message had said, 'the stock is @60, now it's time to sell as per our agreement,' then that would have been okay." I guess so. These guys are rather, uh, literal.

It was easiest to convict Martha, Chappell said, especially on the false statement charge. "We convicted her by early on in the second day of deliberations."

"Did anyone think she was innocent?" By evening, he will tell MSNBC's Dan Abrams that there was no dissent among the jurors.

Pause. "No comment," Chappell says, looking the opposite direction from the questioner.

Someone asks if Martha's background as a broker was a factor. "Absolutely," Chappell nods. "She was a stockbroker so she should have known the rules. Some of those things she did once she felt the heat show that she should have known better. Especially the omissions."

"How'd you think Morvillo did defending her?"

"He did the best he could with what he had to work with. It bothered me that they only put one witness on the stand. It's like they were saying, 'I don't need to defend myself. I don't need to persuade the jury. We know we'll get off.' It was kind of."

"Arrogant?" Andrea Peyser asks hopefully.

"Yeah," he says. "Judging by some of the things they did, I'd say they thought they were special. I wasn't comfortable with the tone of [Peter Bacanovic's taped SEC testimony]. He sounded kind of."

"Arrogant?" Andrea asks, nodding emphatically. "What about the fact that Martha charges her vacations to the company? Did that play into your decision?" What, Andrea, do you want him to admit the conviction was motivated less by evidence than character assassination and vengeance?

"Yeah. She takes vacations and doesn't pay for them—it's like she thinks she's better than everyone else. But, I mean...the vacations didn't factor into our decision."

"What are you thinking of in terms of insider trading?" someone asks.

"Well, as I understood it we weren't supposed to consider insider trading. But as far as not talking to the authorities and not cooperating, yes, she sounded like she thought she was better than everyone else."

In spite of all that, Chappell says he believes the conviction a tragedy of sorts. "We took our job very seriously. I don't care if it's Martha Stewart or John Doe, these are two people's lives we're dealing with. The decision will affect a lot of people—[Martha Stewart Living Omnimedia] employees, stockholders... But maybe this conviction will give the little guy more confident feelings that he can invest in the market and get in on the up and up."

"I—we all—came to this decision with an open mind," he promises.

Sentencing will take place on Thursday, June 17, 2004. Both defendants must report to a probation officer within a week of proceedings.

Judge Orders No Dream Dates With Sheltered Twelve

info@reason.com (Elizabeth Koch) — Wed, 03 Mar 2004 00:00:00 EST

These are Elizabeth Koch's notes on the Martha Stewart trial.

Judge Miriam Cedarbaum spends the early morning hours reciting a condensed version of her jury charge, defining in minute detail circumstantial evidence, unanimity and accomplice witness testimony. She invokes Douglas Faneuil in the latter, "I caution you to scrutinize the accomplice's statement with particular care. Ask yourselves would he benefit more from lying or telling the truth? Did he believe his interests would best be served by testifying falsely or truthfully?" Slam dunk for the defense.

On every count—eight between them—Cedarbaum emphasizes absolute concurrence. "In order to reach a guilty verdict, all jurors must agree that the defendant made at least one false statement or concealed at least one material fact within any given count, and that he or she did this knowingly, willingly and willfully, purposely disregarding the law. It's not enough that some of you agree on one and some the other. The decision must be unanimous."

Throughout her two-hour lecture, only on one instance only does Cedarbaum's language veer from abstract, cyclical legalese: she tells a story (of sorts) to explain circumstantial evidence: "Suppose the day was sunny when you arrived here today, that the blinds were drawn, and someone walks in the room with a dripping umbrella. Then someone else comes in with a dripping raincoat. You may have no direct evidence that it's raining, but based on a combination of fact, reason, and common sense, you may infer that it is." The description chimes in my ears like poetry, like "Bohemian Rhapsody"; from that you may infer the morning was dull as ditchwater.

Around 12 p.m., shortly after the jury's dismissed for deliberations, Cedarbaum receives a note.

"A note!" she chirps. "My jury's had an opportunity to bond," she says, smiling at the yellow college-rule paper as if it were a photo of her grandchildren. "They request to have lunch now so as to include the substitutes, who'll be dismissed once they begin deliberating."

Awww.

Her kiddies pass forward two more notes throughout the afternoon, requesting a phone chart of the calls in and out of Peter Bacanovic's office on December 27, Faneuil's testimony on the same, Annie Armstrong's message logs, Peter's cell and office phone records from 12/27, and SEC officer Helen Glotzer's testimony regarding Peter's February 13 statements. They want one of FBI agent Catherine Farmer's documents, but they can't have it. It's not in evidence.

There is a popular theory that Judge Cedarbaum despises the press; the evidence in support of it is more direct than circumstantial. She says she keeps close watch on her jurors out of respect for their privacy, but her policies seem imperial. Screw the public; they needn't know what goes on here. This is my show. Kind of like what defense attorney Robert Morvillo says about the SEC folk—they run their interviews any damn way they please.

Case in point, an unfortunately smarmy-looking media lawyer crawls out of the floor vents mid-afternoon, during jury deliberations, and approaches the podium. I can't hear his questions, but no matter: Her Honor's response renders them moot on arrival.

Judge: I've never in my eighteen years of practice been asked for the juror's addresses.

Counsel: But...

Judge: In this district and this circuit I'm unaware of any case where the addresses have been requested, let alone granted.

Counsel: I respectfully disagree...

Judge: That was not a criminal case. While we're comparing states, the rule in Connecticut is that neither the address nor the names are released.

Counsel: [Cough. Inaudible question.]

Judge: I certainly do not want to interfere with any juror who wants to be interviewed once I release them.

Counsel: [Inaudible comment.]

Judge: The jurors were made aware the questionnaire would never be public—it's a very unusual request to ask me to violate my promise to the jury.

Her laugh summons visions of a hurtling gavel. Hope the guy has quick reflexes.

Counsel: The public had a right...

Judge: My word is my bond.

Counsel: (Inaudible statement.)

Judge: What case? No Supreme Court case advises it should be made public.

Counsel: [Inaudible statement.]

Judge: I have no intention of preventing reporters from doing their job. My job is to preserve the system of justice and the jury's privacy.

Counsel: [Inaudible question.]

Judge: Cameras are not allowed in the courthouse.

Counsel: [More.]

Judge: What possible relevance? What possible relevance does the face of a juror have on the public? Besides to help sell newspapers.

Counsel: [More.]

Judge: Well, that's fine. This trial is sui generus in many regards. What else?

Assistant U.S. Attorney Karen Patton Seymour stands: "I would suggest that, to prevent jurors from being harassed, we establish some means of addressing that potentiality."

Judge: I think I can rely on the integrity of the press not to disobey my orders.

The sad little man leaves. Just as the door slams on his heels, Cedarbaum starts yelling, "Is the media lawyer still here? Will someone get him?" A court attendee hauls him back in front of the judge. He stands before her, wrists crossed at his back, chin to trachea.

Judge: I've just received notice that both Illinois and North Carolina agree with my practice.

She smiles and tries to shoo him away again, but he begs for one last scrap.

Counsel: [Inaudible.]

Judge: I'd say, from the time I receive the note and the jury gets seated—about five minutes. I cannot hold up the verdict so a town crier go round people up.

I guess we'll be camping out. And by the way, if anyone's interested in buying a transcript of the trial, the total is $5,327.30 to date. Yeah—the courts assumed you wouldn't be.

Cold Case

info@reason.com (Elizabeth Koch) — Tue, 02 Mar 2004 00:00:00 EST

These are Elizabeth Koch's notes on the Martha Stewart trial.

Richard Strassberg, defense attorney for Peter Bacanovic, ends his closing arguments by stressing motive: Douglas Faneuil only comes forward after the ImClone buzz at Merrill Lynch has seeped into the press: Faneuil can no longer hide from the fact that he's the shining center of the entire ImClone scandal. He's the one who performed the Merrill Lynch trades that landed Sam Waksal in jail; it's his statement that informed the SEC, compelling them to investigate further. No surprise that he's suddenly scared out of his mind, Strassberg says, now that it's clear whatever deal the government supposedly made with Merrill Lynch has vanished. Or erupted. Now would be the time to come forward, before he finds himself lying in criminal court. But of course, Strassberg stresses, lying on the stand is exactly what Faneuil has been doing. He has to. If he doesn't stick to the story he and the SEC agreed to, the deal's off. The government will trash the bogus misdemeanor bargain; and Sir Faneuil will not only be tried for a felony but face a brand new perjury charge.

The jury seems genuinely focused, but a few press people sigh loudly and roll their eyes. I frankly don't blame them. Strassberg may be dead-on in terms of content, but keeping his voice below a hysterical pitch would get him farther.

Strangely, when Strassberg arrives at his heart-jerking conclusion—one that might warrant a little drama—his voice drops to a kinder, more gentle timbre. "It's frightening that you could be fighting for your life over a pronoun," he says, referring to the mis-transcribed February 13 SEC meeting, the only meeting the government bothered to tape, which substituted "We" for "I" in Peter's statement that "We told Martha" ImClone was trading downward. "It's understandable that someone made a mistake, but a mistake should never be used to charge someone with a criminal offense." The jury box gasps and becomes still, as if the jurors have had the collective wind knocked out of them. When the pause breaks, heads rush toward notebooks.

"There's only one time for Peter Bacanovic. That time is now. He's a victim, caught in the crossfire about the events of a phone call he wasn't privy to, caught in the crossfire of the government's attempt to make a case against Martha Stewart. He made a mistake (letting Faneuil handle Martha's trade), but was not willing to take a deal that would wrongly implicate his friend. He's lost his reputation, his career, everything he spent over nine years building, and now his life and liberty are also on the line.

"You are here to prevent overreaching and the twisting of facts. I trust you will do just that."

Stewart defense counsel Robert Morvillo begins with his usual clarifying analogy: "The government has accused Martha Stewart of participating in a Confederacy of Dunces!" Heads jerk and eyes widen. "If two smart, successful people were to sit down to concoct a story, wouldn't they make sure to match them up? Wouldn't they have made at least certain aspects of it cohere? Look at the gaping inconsistencies! They fall down on the very first element of the case!"

He goes through a litany of discrepancies that surround the $60 arrangement and ultimate sale of ImClone stock—when they made the agreement, where they made it, who else knew about it, and when they were told. "They couldn't even get straight who took down the order and executed the transaction! What kind of conspiracy is this? It's a Conspiracy of Dunces!" The jury looks somewhere between amused and stunned.

Before launching into the conspiracy charge, Morvillo mentions something prosecuting attorney Karen Seymour said in her opening arguments: that the Waksals were "trying to sell every last ImClone share they held. That was an inaccurate statement," Morvillo asserts. "Sam Waksal only held 2 percent of his over three million shares at Merrill Lynch. Do I think Seymour's a liar? No, of course not. She made a mistake. Just like Martha made a mistake when she thought she was speaking to Peter instead of Faneuil, jut like Heidi thought she wrote the note on November 7 instead of in October."

With that hit, he confronts conspiracy—the government's argument that Peter and Martha met after December 27 to get their stories straight. Morvillo asserts there was plenty of non-ImClone related activity in Martha's account from January 7 to April 10, the period in which the SEC interviews were conducted, that demanded broker and client conversation. In the beginning of 2002, Martha sold a chunk of her Martha Stewart Living Omnimedia stock for $45 million. "This is not $450 we're talking about," Morvillo says, referring to the amount of commission Bacanovic made off Stewart's December 27 ImClone dump. "There's not a shred of evidence that anything going on in any of those conversations was improper or conspiratorial." As for Faneuil's word...

"Faneuil testified that when Peter returned from his January 16 breakfast meeting with Martha Stewart, he said, 'We're on the same page,' about the $60 agreement. They weren't on the same page, they weren't even in the same boat! To believe the government's story, you'd have to believe these two people got together to conspire and couldn't get it right."

Brian Schimpfhauser, a Merrill Lynch market surveillance officer, accuses Peter of sending Martha a signal that something was going on with ImClone. But why, Morvillo asks, would Stewart assume Peter's "signal that Waksal was selling stock in his company" meant something [awful]? She believed the FDA would pass Erbitux anytime soon. There are all sorts of reasons Sam could have been selling—to diversify, for immediate cash, because the price is trading downward—"how would Martha know Sam would go insane...that he would be dumb enough to sell right before a black-out period [right before the FDA denied approval of his wonder drug], when he knew he'd have to file within ten days? And that his sale would be scrutinized?" At least half the jury is taking notes, the other half lean towards Morvillo. Even sleepy Juror 11 is writing in her notebook.

About the same Feb 4 meeting, Morvillo later asks, "If there was any doubt about what was talked about in that meeting, why didn't the government subpoena David Marcus (Merrill Lynch's general counsel), Steve Snyder (head of Merrill Lynch market surveillance), or Jill Slansky (FBI agent who took notes)? Why'd they call on Brian Schimpfhauser, the rookie whose job is to stare at the computer, the one with the haziest recollection? Why not call in experts about what happened in [Faneuil's] January 3 statement or [Bacanovic's] January 7 phone interview?" Several jury members cock their heads simultaneously, as if thinking, "Hey, that's right! Why the hell didn't they?"

Morvillo nails the government for mishandling Stewart's interviews in general. The FBI did not tape or transcribe them, the SEC did not tell her she was under oath, and the participating agents did not read her the SEC rules of compliance. First, Morvillo argues, "How can you say whether Martha dodged questions or responded in full when no one bothered to record the questions? Not recording the interviews allows the government to go after you any way they want."

Assistant U.S. Attorney Michael Schachter objects.

Second of all, "How can you accuse Martha of even knowing these were legitimate SEC meetings? The real deal? They didn't hold the interviews in the SEC office, nor did an actual SEC officer conduct the interview—the assistant United States Attorney did. How can you accuse Martha of willfully obstructing justice and lying to officers of the law when they were conducted so informally? The questions themselves were misleading—the interviewer doesn't give Martha a chance to rethink her erroneous belief that she preformed the December 27 trade with Peter, but instead leads her down a misguided path, trapping her in her error and calling it a lie. They take shoddy notes, then use them to tie Martha's "I don't know" response to a question about whether a record existed of Peter's December 27th message ("ImClone is trading downward") rather than when the message was recorded."

Morvillo spends some time on Peter's "@ 60" document, the spreadsheet that lists Martha's 2001 most ailing stocks. He points to the circled Apple, Nokia, and ImClone stocks, and says, "Even the world's leading ink expert agrees" these marks were made with the same pen. "When Peter circled those stocks, he wasn't doodling. The only reason to circle the stocks was because there was something to do. They sold Apple and Nokia on December 24; there was one stock left to get rid of," one Martha wanted to hold onto both out of loyalty to her good friend Sam, which Mariana Pasternak testifies to, and because she still believed Erbitux would be approved.

Morvillo takes as many hits at Faneuil, whom he describes as the centerpiece of the government's case, saying that he told half-truths he told on the stand. Way too many to record. "Heidi Deluca, Martha's business manager, puts the nail in Faneuil's recollection. Faneuil claims Heidi called him in the beginning of January all mad that ImClone sold at a profit, which screws up Martha's 2001 tax-loss plan. But in January Heidi still believes ImClone belongs on the 2002 tax form. She doesn't ball him out until February, when she gets the 1099 from Merrill Lynch that demonstrates she was wrong.

"Peter had told Faneuil about the $60 agreement at least a month before Faneuil and Deluca's February conversation. But Faneuil testifies that it wasn't until Heidi alerted him to the big flaw in the tax-loss story—that it sold for a gain—that Bacanovic changed his story to the $60 agreement. In February? There had been multiple SEC interviews by that point. It could not have happened that way.

"Instead of giving you proof of anything, the government gives you Douglas Faneuil, the very definition of reasonable doubt."

Juror 1 looks up from her notes to smile.

Morvillo gets in one final dig. "When Faneuil was asked whether he was prepped for his testimony, he said yes, 'But they didn't ask me all these questions.'

"Tell us, you of the prodigious memory," Morvillo booms, "tell us one question they failed to ask you. One question you were surprised by on direct:

"'I can't remember.'"

Morvillo ends his statement by imploring the jury: "Let Martha Stewart return to her life and improve the quality of life for all of us. If you do that, it's a good thing."

Seymour's rebuttal is so slipshod it's almost not worth mentioning, not least because the jurors look absolutely fried. Many sit with folded arms and fidget throughout her comments, pleading with their eyes for her to just stop talking. Maybe she picks up the exhausted vibes, because she spends the first twenty minutes rambling absentmindedly: She says "actions speak louder than words" and "Morvillo can't read Faneuil's mind—you are the ones who must decide what Faneuil was thinking about." That advice should knock a day off deliberations.

She repeats the same stuff Schachter said in his closing, only simplified to the point of uselessness. "Faneuil did accept responsibility—he turned himself in!" she pleads. The jury just looks at her—no one's taking notes. "He accepts that he lied before, he admits it, he accepts responsibility. He even volunteered that he misrepresented his GPA on his resume, claiming 4.5 when in fact he had a 4.44."

It's all downhill from there, if you can imagine. "Faneuil was tired by day three up there on the stand. He'd been through a huge ordeal. He's not going to be totally consistent." Even worse, she attempts to rebut accusations that Faneuil exaggerated and twisted conversations to fit his needs by unintentionally calling him a good actor. "Remember how he represents his boss from the January 13 SEC tape—didn't his [imitation] sound just like Bacanovic?" It' probably doesn't work to Faneuil's advantage that he's a good impersonator.

She closes with another flub, the most telling one of all. "Morvillo suggests that Peter and Martha were too smart to make the mistakes they made. But white collar criminals are often bright and do really stupid things—perhaps the two were dismissive or arrogant about the investigation, perhaps they didn't take it seriously..." And perhaps the government was looking for an excuse to take down corporate America. For being too successful, and too damn proud.

Tomorrow Cedarbaum will read the jury her 70-page long list of instructions.

Golden Slumbers

info@reason.com (Elizabeth Koch) — Mon, 01 Mar 2004 00:00:00 EST

These are Elizabeth Koch's notes on the Martha Stewart trial.

Martha Stewart has some problems getting through the courthouse metal detector today. I'm waiting a yard or so away, but I swear on her third beeped walk-through a male member of her clan quips, "What's up with that, Martha? Didn't they drop the securities charge?" She shrugs and laughs.

Judge Miriam Cedarbaum may have thrown out the securities fraud count last Friday, but this morning Prosecutor Karen Seymour argues that the government should be allowed to redefine the charge in the "other lies" category. Cedarbaum will permit prosecution to argue that Stewart's June 12 and 18 public statements, in which she refers to the "$60 agreement" between Martha's broker, Peter Bacanovic, and herself, were attempts to mislead the public but not to defraud her investors.

While the jurors shuffle in and settle into their seats, Cedarbaum instructs them "not to speculate as to why the securities fraud charge was thrown out. That fact should not enter out deliberation." It will be interesting to see how and if Morvillo slips his small victory into his closing arguments.

Other than a few embarrassing attempts at mimicry, United States Assistant Attorney Michael Schachter offers a persuasive closing. He manages to thread together enough loose ends—a colorful array of surmises and speculations—into what appears to be a tightly knit red flag. Sitting in the courtroom today, it's easy to see how one could buy his whole story and only later, when forced to look closely, notice the holes.

Schachter centers the greater portion of his closing arguments on the testimony of Douglas Faneuil. He repeats Faneuil's argument that Peter bullied him into swallowing multiple cover ups with regards to Stewart's dumping her ImClone shares—first to a tax-loss agreement, then a $60 floor agreement. Schachter says, "Use your common sense, ladies and gentlemen. Why on earth would anyone make this up? There had been no subpoenas; Faneuil came forward on his own. It was his word against two powerful people. He admitted to lying in two interviews, had his personal life exposed, and is barred from working in the securities field for life." Schachter calls upon common sense a lot, and Bacanovic attorney Richard Strassberg will later do the same. If participants in this trial had been using common sense, we wouldn't be here. Peter would not have let his assistant of six months handle the trade, Martha would not have lied about calling Sam Waksal minutes after selling her shares, and Faneuil wouldn't have blamed everyone around him for what were ultimately his poor decisions. The prosecution would not have a case. Request anything you want—the weighing of facts, attention to omissions and inconsistencies, proof beyond reasonable doubt. But to incite common sense is like saying, "go with your gut." Which may be a fine guide for buying prom dresses or booking hotels in Bermuda, but not when concluding innocence or guilt.

The jurors, who appeared ready to applaud after Seymour's opening, now seem balanced and thoughtful, if not a bit skeptical. Most keep their heads cocked in question, many take notes. None look convinced.

"You are going to hear," Schachter says, curling his lip in preparation for Round One of imitations, "that Faneuil was 'fixated' on Stewart. But is there a shred of evidence to support this? A couple of e-mails? Does anyone really believe that because Martha was mean to him during a couple October phone conversations, that Faneuil would make up this whole scheme just to get her back? That he would do anything to be the 'big man'?" He tosses his head from side to side, pitching his voice like a grade-schooler singing "nanny nanny boo boo." No response from the jury. As for Martha, she has yet to move.

Schachter recalls Emily Perret, Sam Waksal's assistant in 2001, who testified that Martha called the office on Dec 27 and demanded to speak to Sam. "Martha Stewart testified to the SEC that she was just calling to see how Sam was. But ladies and gentlemen, does 'Get Sam! I want to know what's going on!' sound like a condolence call?" Imitation Round 2. Is Schachter's copying his star witness' courtroom shtick? The attorney's method is more than reminiscent of Faneuil's testimony, where the assistant seemed to draw true pleasure from doing Martha impersonations. Call me a type caster, but I'd say the style is better suited to a twenty-eight year old pretty-boy club kid than the Assistant U.S. Attorney. After saying the burden of proof rests on the government, Schachter qualifies, "But if you believe Faneuil's testimony, the trial is over. You can go home early."

Schachter uses the complementary statements of Zeva Bellel and Eden Werring to further explore his comedic urges, this time to better affect. Faneuil's two friends both testified that he'd confided in them about the events of December 27, specifically that his boss had directed him to tell Martha Stewart that Sam Waksal was selling, then cover it up. The attorney rightfully asked why on earth he'd lie to them too. "Faneuil wasn't trying to cut a deal with Zeva. He was not trying to get a cooperation agreement with Eden. Why tell them at all, when any admission would only create new witnesses to the fact that he was lying to the SEC? The only reason he'd tell them was [to get it off his chest.] To tell the truth."

Juror 3 scribbles furiously. Martha looks at her lap.

As for Seymour, when her eyes aren't performing witchcraft on the jury, she sneaks little glances at the press box, makes an assessment, than returns her gaze to the jury. Her rebut will follow the defense's closing arguments.

After we all endured two days of ink wars, Schachter spends about ten seconds discussing the "second pen" Bacanovic used to write @ $60 on the document in question. Instead, he focuses on the illogic of the agreement: That ImClone had fallen the same amount on the 21st of December as on the 27th. "Mr. Maine, [a market analyst] would have you believe that on December 27, ImClone was 'falling out of bed.' I submit that if ImClone had really been 'massacred' the way he said it had, we'd be in another Great Depression." Juror 4 laughs. Number three frowns and clutches his head, scribbling more furiously.

Finally Schachter gets to Heidi Deluca, Stewart's business manager. If anything was massacred, it was her testimony on Schachter's cross. "Heidi points to a note she purports to have written on Wednesday, November 8, as proof of the $60 agreement. I submit she was confused, that she actually wrote down "tender offer" and "ImClone—$61.52" on Wednesday, October 24." He asks if it was mere coincidence that the stock price hit that exact amount during her October conversation with Peter, when they were discussing selling the ImClone shares in Martha's pension funds. Or that the stock price never actually hit $61.52 on November 7 as Heidi purports. Or that said tender offer expired on October 26, the day before Peter sold Martha's pension shares at around $61. "What was Heidi Deluca doing up there on the stand?" Indeed.

Defense lawyer Richard Strassberg, like Schachter, dwells on Faneuil for the greater portion of his closing. Once, that is, he gets off the dead-end argument that "it makes no sense that Peter Bacanovic, who had built his whole life on his integrity, whose entire career depends on his clients' trust, would have told his assistant of six months to betray another client and pass along personal info. Celebrities especially want to guard their stock—if he'd told Martha Stewart about another client's activities, how could she ever trust him again?" Fine, Strassberg, it makes no sense. But Peter's human. He could have done it anyway. Next.

The judge falls asleep about here. Juror 11 quickly follows, head lolling so far to the right she'll shortly be in her neighbor's lap.

Strassberg's arguments are most effective when he explores Faneuil's integrity. "Faneuil had a motive to lie from the very beginning. He knew that telling Martha about Waksal's stock activity was wrong—he testified to that. He knew what the company policy was. He knew he could get into trouble, so he balked and blamed it all on Peter. Faneuil refuses to take responsibility for what ultimately was his decision." And this issue—that of personal responsibility—is the crux of Strassberg's argument.

To paraphrase, Strassberg says, "Faneuil admits Peter never told him to lie, but tries to minimize his own culpability by repeating that his boss aggressively implied he should. That in affect, Bacanovic bullied and intimidated him into agreeing with his stories. Faneuil paints himself the victim throughout his testimony, suggesting, 'Not my fault, I didn't know better'—even softball issues. Like when he didn't have the correct brokerage registration, when he threw away Eliza Waksal's stock sale stub, when he tossed a fax sent by a Waksal representative. It's always someone else's fault. He testified that although he knew what Bacanovic reportedly told him to do was wrong, he figured boss knows best." Cedarbaum's eyelids flutter—has she revived? No, there they go again. Strassberg is not deterred, probably because his back is to her. "Which is exactly what he says when his lawyer, the late Jeremiah Gutman (who died of a heart attack days after his testimony), inferred he should either lie to the SEC or say nothing. 'I figured my lawyer was looking out for me.'"

"Now Faneuil's a fascinating character—he twists the facts in just the key way to make all the difference in the world." Juror 11 jolts awake, notices her new friends are all bent over their notebooks, and follows suit. Strassberg continues, "Now Mr. Gutman testified to something a little different than what Faneuil said; Gutman's statement is that he told Faneuil to tell the truth or take the fifth, not to continue lying."

By this time, even Martha's spirits have visibly risen. She's watching the jurors with confidence and interest. They're too focused to notice.

"Faneuil's got enough conspiracy theories to go around. He accused Marcus, the head Merrill Lynch compliance officer, of telling everyone to keep quiet. He accused Judy Moynihan, a Merrill Lynch administrative officer, of bribing him, retracting only after realizing how ridiculous it sounded. Now is Faneuil just misunderstanding, or is he making this up?" Juror 4 taps his hands on his lips, nodding slightly. "If he just misunderstands, why do all the misunderstandings work out in his favor?"

Good question. Toward the end of the day, Strassberg asks the jury to consider whether the demeanor we saw on the stand—that of a confident witness evidently able to look folks in the face and lie, as he did with the SEC on several occasions, who resists answering direct questions over 200 times in exchange for asserting his own version of events, who always has to get in last word—"Is that someone who seems too timid to ask Peter Bacanovic a question about his story? Is that aggressive, astute person the one we heard him describing back in 2001? Those to people are not the same."

When Cedarbaum wakes up, she tells Strassberg to wrap it up. He can take another 45 minutes tomorrow. Robert Morvillo's closing, if anything like his defense tactics thus far, will likely be brief.

Defense Plays Dead

info@reason.com (Elizabeth Koch) — Wed, 25 Feb 2004 00:00:00 EST

These are Elizabeth Koch's notes on the Martha Stewart trial.

Judge Miriam Cedarbaum begins the day with a promise: "We're very close to home plate, members of the jury." She rushes the attorneys through their remaining evidential requests before calling the final defense witness to the stand. Steven Pearl, an attorney who accompanied Stewart and John Savarese—Martha's corporate lawyer in 2002—to the February 4 SEC interview, is Martha Stewart's one and only witness. It seems Stewart's attorney, Robert Morvillo, assumes the single witness strategy is its own evidence, as if the prosecution's case is so paltry Martha's got nothing to prove. The tactic seems risky, especially considering the two strongest testimonies—that of Doug Faneuil and Heidi Deluca—both wounded the defense.

The jury may feel shortchanged.

Witness: Steven Pearl, a private attorney assigned to take notes during Martha Stewart's February 4, 2002 statement to the FBI and SEC. Pearl accompanied Stewart and John Savarese to the meeting

Prosecution contends that during the interview, Stewart falsely claimed she didn't know whether a record existed of the message Bacanovic left her on December 27. Since the FBI rarely tapes interviews—a practice that should itself raise eyebrows—Pearl's notes are Stewart's best weapon against the false claim charge. The neophyte lawyer testifies that his transcription "captures the substance of the interview, and some of the details, but is not a verbatim account."

"Did you record your notes in a database, Mr. Pearl?" asks defense attorney John Tigue.

"Yes, I typed them up in a memorandum, which I completed in full the following day—February 5, 2002." He says the memorandum is more comprehensive than the notes, since he was able to recall names and other details after the interview concluded.

Pearl seriously over-lawyers himself. When Tigue asks the witness if he remembers the question, "What time did Peter leave you a message on December 27, Ms. Stewart?" Pearl hems and haws and mutters about word precision, then finally admits to somewhat recalling the question but not Stewart's answer. He's more certain that John Savarese offered to look up the message in Martha's log.

Predictably, Pearl is even more hesitant on cross. Assistant U.S. Prosecuting Attorney Karen Seymour swanks herself up to the podium, flaring her dimples like she knows she's got him. Her first series of questions establish that Pearl's no note-taking expert, a fact he readily agrees to. She then enters into evidence the disputed portion of his records, comparing a line from Pearl's notes to a line from the memorandum:

Notes:

Q: When did Peter call?

A: —— log that Peter carried?

Memorandum:

AUSA: At what time had PB left a message for MS to call him on December 27?

MS: Does not know. JFS to send them the phone log.

Seymour's goal is to punch holes in Pearl's accounts: if the jury believes that the question posed to Martha concerns the time of Peter's message rather than its general existence, the government's false statement charge turns to dust. She riddles Pearl with queries: did he record every question; is he certain of Martha's response; how could he possibly piece anything together at this late a date. He concedes her every point. Wimp.

Seymour, seeing he's an easy target, hits harder: "Mr. Pearl, regarding the question mark that follows '...Get phone log Peter carried.' Couldn't it mean there was some question about the existence of a phone log?" Pearl seems skeptical, but doesn't disagree. "Isn't it true that you don't know who suggested that Savarese 'get the phone log'?"

He hesitates, then grants that as well.

"Is it fair to say that today, based on these notes, you don't know if Ms. Stewart knew the phone message existed?"

Pearl starts to speak, pauses to reflect, then concedes. "I'm not sure." Not a stellar testimony, but you never know: Te young lawyer's triple-time deliberations could work to the defense's advantage. If he's that nitpicky on the stand, the jury might conclude he attended to his memorandum with the same diligence.

Witness recall: Larry Stewart, the Secret Service's chief forensic scientist. National ink expert

Two days ago, when Larry Stewart's rival and one-time boss, Dr. Albert Lyter, testified for the defense, Stewart was there to watch. The self-proclaimed ink king sat with folded arms while Lyter explained the results of his densitometer testing, sighing and rolling his eyes when Lyter concluded that at least three pens were used on Bacanovic's "@60" document. And here he is, back on the stand, all geared up to rebut. "The numbers Lyter generated don't make sense," he gripes. "When I tried to recreate his results, I found that if I manipulated the machine, shaking it and twisting it around, I could get the numbers to turn out any way I wanted." Is the mudslinging really necessary? It's hard to believe this guy's testimony is built on much more than ego.

In the end, Larry Stewart is forced to testify that although in his estimate only two kinds of ink appear on the page, it's possible the circles and checks came from multiple Bics. My conclusion certainly hasn't changed: the ink war is bogus. The fact that Bacanovic used more than one pen, like most mortals, is hardly the crucial evidence. If Cedarbaum's opinion is any indication, it's unlikely the jury will lean too heavily on either "expert" testimony—"Are we still on the ink?" she grouses after lunch.

The most damning evidence of the day comes last, in the form of an audiotape. Prosecution plays a few minutes of Bacanovic's February 14 interview with the SEC, the thrust of it concerning the content of Peter's conversations with Martha's Connecticut office business manager, Heidi Deluca. Bacanovic begins with a denial: "I would only speak of [Stewart] buying or selling securities in the context of tax planning." Not a contradiction: Yesterday Deluca testified that the $60 agreement came up during a discussion about tax-loss selling.

"Did you speak with [Heidi] about Martha Stewart selling ImClone stock?" the interviewer asks.

Peter explains the context in which ImClone came up. He says Deluca was frustrated they'd sold ImClone at a gain at the tail end of 2001. "She didn't expect me to add gains at the end of the year," he says, which again parallels Heidi's testimony.

The interviewer persists: "So she was wondering why you'd put in a gain right before the end of the year?"

"Correct," Bacanovic says. "And I told her what I tell all my clients: 'Gains are good.'"

When the interviewer gets to the $60 question, things take a wrong turn. "Did you talk to Heidi at all about, you know—once the stock hit $60, [Stewart] should sell?"

"I don't go into that level of detail with Heidi," he insists.

"And she never brought it up to you?"

"No. She only brought it up to me in terms of adding gains to the account," Bacanovic's on record as saying. "She made a short passing comment, 'Oh, you've added gains. Why did you add gains to the account? I thought we had the whole thing so tidy.'"

But yesterday, Heidi testified that she and Peter did speak specifically about getting rid of the ImClone shares in Stewart's personal account. Deluca's statement was that on November 8, 2004, "Peter said ImClone was a dog, and that once Martha's personal account was transferred from Morgan Stanley to Merrill Lynch, he'd suggest setting a $60 floor on ImClone." Either Peter didn't remember relaying the message to Heidi or he was lying. Jury's call.

The charge conference, where Cedarbaum debates her jury instructions with the attorneys, takes place tomorrow. Press may or may not have access to the transcript; we'll know by 5:00 p.m. Closing arguments are Monday and Tuesday. Cedarbaum may hold off her securities charge ruling until after the verdict.

Heidi Boils

info@reason.com (Elizabeth Koch) — Tue, 24 Feb 2004 00:00:00 EST

These are Elizabeth Koch's notes on the Martha Stewart trial.

Theoretically, Judge Cedarbaum made her hearsay rulings this morning; in practice, they had little to do with Heidi Deluca, Martha's Connecticut office administrative business manager, and everything to do with defense attorney David Apfel. The judge did not rule in his favor.

Apfel does his best to question Deluca, but can hardly cough up two words without Cedarbaum blasting him. He asks about Stewart's money transfers: "You cannot lead the witness!" About Heidi's part in the January 3, '03 phone conversation with Doug Faneuil: "I already ruled on that!" About an e-mail Deluca received from Marylin McCallister, an outside accountant, in the beginning of January. "Mr. Apfel, I don't know why you can't abide by what I rule." About anything and everything in between: "Will you just ask the question?"

All of this in the first 10 minutes. The jury looks embarrassed, the press bench holds its collective breath, I have an empathetic panic attack. Apfel, trooper that he is, just keeps on going.

And apparently commits a major blunder, that doesn't make itself known until prosecuting attorney Michael Schachter's cross.

The first part of Deluca's testimony goes much like yesterday, with Heidi now testifying in front of the jury. Apfel asks her about an ImClone conversation that took place between she and Stewart on January 29, 2002.

"Martha asked me, 'What do you remember about ImClone?'" DeLuca says. "I reminded her that ImClone was part of her pension plan, that she tendered shares out of her personal account, and that Peter said he'd talk to her about setting a price bottom of $60 or $61."

So far so good. Just wait.

Michael Schachter has never looked so good. "I've never seen a better cross," a veteran court reporter and legal expert announces at lunch today. Schachter reels Deluca in with a seemingly innocent question about her job requirements. She happily answers.

He continues, "About what percent of you workday do you spend on Martha Stewart Living Omnimedia, and what percent for Ms. Stewart's residential services?"

"I'd say 30 percent MSLO, and 70 percent personal."

"Who pays you?"

"MSLO," she blinks without a thought.

"In full?" he reiterates.

"In full." Advice on how to burn a frog suddenly pops in my head. You start out with the temperature on low, so it's sitting all warm and comfy, and slowly turn up the flame.

Deluca testifies that as of late October 2001, Stewart had 51,800 ImClone shares in her Merrill Lynch pension account, and 5000 ImClone shares in her Morgan Stanley personal account. Heidi insists that on November 8, 2001, she spoke with Peter Bacanovic on the phone about the ImClone stock Martha held in her personal account at Morgan Stanley. Deluca testifies that although Peter thought ImClone "was a dog," he said he'd talk to Martha about setting a floor price at $60 or $61—"when her Morgan Stanley shares arrived at Merrill Lynch."

Schachter: "About Ms. Stewart's pension account—tell us again how many ImClone shares she had there?"

"51,800."

"When were those sold, and for how much?"

"In late October 2001, for around $61," Heidi recalls.

"Isn't is possible, Ms. Deluca, that the Nov 8 conversation you remember actually took place on October 24, '01, the day before Ms. Stewart sold the stock in her pension account? Didn't the $60 conversation you had with Peter refer to her pension plan and not her personal account?"

She blinks, this time thinking. "Will you repeat the question?" she asks, a request she'll make of Schachter more than once. And not because he's being unclear. Quite the opposite. He's polite, considerate, and almost humble throughout his cross. No one objects, no one stirs.

"No. I had several conversations with Peter about ImClone. The one in October was about the pension plan; the one in November was about Martha's personal account," she insists.

"And how are you so certain, Ms. Deluca?"

"I know we spoke about the $60 or $61 floor on November 8 because I'd checked on the price the day before—I was regularly checking up on ImClone's price—to see if it had gotten closer to the tender offer. I recorded the price at $61.52 on November 7 and asked Peter about it the next day. He said he'd speak to Martha personally."

"Did you talk to Stewart about the $60 floor? Did you follow up with her regarding ImClone's stock price? Did you ever warn her when the price hit $60 and then dipped below as it did several times between November 8-12?" Schachter asks.

"No, it was taken out of my hands at that point [i.e., after her November 8 conversation with Peter]. Peter said he'd take it up with Martha."

Unfortunately for the defense, Schachter enters into evidence Heidi's message log. On a note dated October 25, 01, 2001, the day the pension shares were sold at $61, Heidi writes: "I know Martha wants me to stay out of it, but I wanted to remind her one last time of the 5000 ImClone shares in her Morgan Stanley account. Now it's out of my hands." This admission makes Heidi look perilously confused. Basically, she claims haphazardly that events which occurred on October 25 actually took place on November 8, and further muddles matters by attributing dates and conversations to activity in Martha's personal account when they can more logically be connected to her pension account. As we'll continue to see.

Schachter remains patient and focused as he simmers the defense witness. He asks about Martha's MSLO stock sale on October 24, 01, insinuating that Deluca spoke to Bacanovic on the phone on October 24, '01, at 2:19 p.m. for 21 minutes, about Martha's tax-loss selling plan, about which stocks to sell at a loss to offset her MSLO gains. He enters into evidence the Quicken worksheet on which Heidi noted Peter's suggestions, as well as the e-mail Deluca sent Stewart October 25, 2001, the following day, filling her in on Bacanovic's suggestions.

On a document also dated October 24, 2001, a document listing the same stock with the same prices as the e-mail Heidi sent Martha on October 25, Heidi scrawls at the bottom, "Wednesday. Im-Clone: $61.52. Tender offer not responding." This is the note Heidi claims to have written on November 8, 2001. But once again, the document is dated October 24, not November 8. It's baffling how defense missed this, and more baffling that no one asks Heidi why on November 8 she wrote such a note on a seemingly unrelated document, one dated two weeks prior to her claim. There are feasible explanations—mine would be complete guesses—but the fact that defense doesn't take this one on isn't a good sign. Schachter does: he believes Deluca's note was referencing a tender offer Bristol Meyers made on September 28, 2001, a bid to buy 20 percent of ImClone shares @ $70. By "tender offer not responding," Heidi—the prosecution contends—must have been comparing the $61.52 price she recorded off NASDAQ to the $70 Bristol Meyers was offering.

And to sum up the coincidences, bringing Heidi to a full boil: Bristol Meyer's tender offer expired at 5:00 p.m. on October 26, 2001, just two days after Heidi's phone conversation with Peter. Schachter enters phone logs into evidence that record a 10 a.m. phone call Peter made to Heidi on October 25. "Isn't it true that Peter called you on October 25 because he wanted Martha to tender the ImClone stock in her pension account at $61?" Schachter asks again.

"No, I recall something different about the conversation." Schachter, of course, doesn't give her an opportunity to share. It's hard to argue with the facts: During the 21 minutes Peter and Heidi communicated in October 24, 2001, ImClone hit $61.52. Martha sold the shares in her pension account on October 25 and 26, at almost exactly that price.

On redirect, the only thing defense lawyer John Tigue gets out of Deluca is that Stewart reimbursed MSLO for Deluca's salary in '02.

The only other witness of the day is John DeMaine, a retired stock broker. He now acts as an independent consultant and has testified in over 300 trials. Today he demonstrates the extreme volatility of ImClone on December 27, claiming the stock "fell out of bed" immediately after NASDAQ opened. Even as the volume of stocks fell in the market at large—an event you'd expect during the Christmas holidays, he testifies—ImClone's volume spikes, as early as 9:30 a.m. He says target pricing makes sense with an unstable stock like ImClone. Defense seems to be using DeMaine's testimony to recall Bacanovic's assistant, Doug Faneuil, who also testified about ImClone's December 27 activity. In his statement, Faneuil quoted Bacanovic as shrieking into his cell, "Oh my God, the stock is going crazy, get Martha on the phone," a statement consistent with DeMaine's observations. Take it a step further, and we recall the message Faneuil left Martha's assistant, Amy Armstrong, on December 27, 2001, which said, "Peter Bacanovic says ImClone is selling downward." Which it was, at an alarming rate. Even if Martha did erase then put back the message, one could easily make the case that she knew how such a note could be interpreted. And it turns out she was right.

Bacanovic's defense team rests. Robert Morvillo is calling one witness to testify on Stewart's behalf: Martha's MSLO attorney, the one who actually took notes during her Feb 4, 2002 interview with the SEC.

Prediction: Both parties will rest tomorrow; Cedarbaum will hold the charge conference on Thursday; and closing arguments will be Monday and Tuesday.

Cedarbaum has yet to rule on which charges, if any, she'll drop.

What's the Price? Sixty Twice!

info@reason.com (Elizabeth Koch) — Mon, 23 Feb 2004 00:00:00 EST

These are Elizabeth Koch's notes on the Martha Stewart trial.

The courtroom this morning anxiously awaits Judge Cedarbaum's decision whether or not to toss the charges filed against Martha Stewart and Peter Bacanovic. Out of the five counts against Martha Stewart—conspiracy, two counts of false statements, obstruction of justice, and securities fraud—she seems most ambivalent about the last. Prosecuting attorney Karen Seymour, eager to safeguard the conspiracy charges, holds Stewart's SEC testimony as undeniable proof of wrongdoing:

"On February 4, 2001, Ms. Stewart said that her managing accountant, Heidi Deluca, and her broker, Peter Bacanovic, would back up her $60 agreement story. THEN," Seymour aggressively recounts her theory, "she immediately recanted her assertion that Peter would concur, because she realized it contradicted what she'd just confirmed—not having spoken to Peter about ImClone in January." Of course that's Seymour's interpretation: when Heidi Deluca testifies later today, we'll see another.

Both Michael Strassberg (Bac's attorney) and Robert Morvillo (Stewart's attorney) insist that the government has yet to come up with independent proof that the defendants spoke on Jan 7, 2001, as prosecution contends. As Morvillo puts it, "Just because Stewart and Bacanovic said the same thing about the $60 agreement is not sufficient evidence of conspiracy."

An hour later, Cedarbaum puts a stop to the arguments: "I will reserve decision on all these matters." For when? The longer she puts off her verdict, the more time and money we waste listening to testimonies that could be rendered moot.

Witness: Jeremiah Gutman, Douglas Faneuil's attorney from January '02 to March '03

Gutman's fifteen minutes were more like five. He'd refused to meet with defense prior to testifying, so Strassberg wasn't sure what he'd get from the witness. It showed. Most of Gutman's testimony confirmed rather than contradicted Faneuil's statement, off by mere degrees.

Strassberg asks, "Did you ever tell Douglas Faneuil that, according to Merrill Lynch's in-house attorney, David Marcus, the brokerage firm had made a deal with the government: As long as they hand over Waksal's head on a silver platter, the government would ignore any Stewart wrongdoings?"

"Not quite," Gutman corrects. "I told him that the deal involved getting Merrill Lynch employees off the hook. Not Martha." Either way, Faneuil thought there was an arrangement, and therefore was persuaded to keep his mouth shut for a time—precisely the story he testified to weeks ago. But here's where degrees matter: Faneuil remembers the bargain not in terms of "Merrill Lynch employees" but in terms of its affect on Martha; considering who gave her the tip, "Martha" quickly translates into himself. This distinction seems inconsequential until we review the defense's main gripe against Faneuil—that he's a self-serving liar who'd do or say anything to save his own butt, even if it means pleading guilty to something he's innocent of, like, say, accepting bribes from Bacanovic in exchange for keeping quiet. Bribes the defense proved did not exist. Sure, why not accept a misdemeanor slap when you're looking down the felony barrel?

Nevertheless, Gutman's testimony is not going as planned; Strassberg's agitation is mounting. "Mr. Gutman, did you tell Faneuil in March '02 to go forward and [simultaneously] not lie but also stick to your story [about the $60 sell agreement]?" he asks hopefully.

"I told him to not lie but that if he came up with a different story, he'd be sticking his neck out. I recommended he get independent council to accompany him [to his SEC confession]," Gutman says. Strassberg paces, rakes his fingers through his hair, but doesn't interrupt his witness. "Faneuil got upset, said he was afraid to go forward, that he was afraid of them all, that [everyone at Merrill Lynch] was merciless and amoral. He cried and kept repeating he was afraid." That does it. Defense ushers Gutman off the stand, before he could do any more damage. Too late: the jury will come away thinking that Faneuil was more afraid of Merrill Lynch's wrath than either the government or jailtime, a belief that flies in the face of the defense's whole argument.

Witness: Dr. Albert Lyter, forensics chemist, self-employed at Federal Forensics Associates consulting firm

Bacanovic attorney David Apfel spends over ten minutes extracting credentials from Dr. Lyter, a necessary move considering the government's ink expert, Larry Stewart, dubbed himself "the national ink expert." Lyter may not be as engaging or slick as Stewart, but he also appears less biased: whereas Stewart works for the secret service, a government agency well-known for its shady dealings, Lyter is an independent contractor. But no hack, as prosecution would have it. Prior to opening his own lab in'82, Dr. Lyter worked for Alcohol, Tobacco, Firearms and regularly examined ink samples for federal, state, and local agencies. He left ATF when the secret service opened an internal lab and soaked up the bulk of ATF's clients.

Oh, and national ink expert Larry Stewart was Lyter's intern.

Lyter testifies that unlike Larry Stewart, he labeled all the marks on the page as "entries" and tested each and every one of them. Using a method called densitometry, Lyter concluded that at least three pens were used on Bacanovic's document: One for "@60 and the dash after ImClone; one for the circle around ImClone and the question mark after Apple computers; and at least one more for the remaining circles and check marks."

"Can you tell us with certainly which marks were made with the same pen?" Apfel asks.

"I can only say with certainly which marks are made with different pens." He clarified that since ink is made in batches, it's almost impossible to distinguish between the pens filled with ink made from the same batch. "Just because density between ink marks is the same doesn't guarantee they were made with the same pen."

Prosecuting attorney William Burke saunters up to the stand, leans casually on the podium, and tries gutting Lyter with tone rather than substance. "So," he says with disgust, "how often do you adjust this densitometer?" Stick it to him, Burke.

In the end, it comes down to whose "expert testimony" and ink analysis equipment the jury trusts more: that of the government, the defense, or neither.

Witness: Heidi Deluca, Martha Stewart's business manager since 2000

Deluca, looking homespun and girly in a carnation pink sweater, her long blond hair pulled back in a headband, would have flattened Faneuil's testimony if Cedarbaum hadn't ruled 70 percent of her testimony hearsay. What she did eke out without objection was that on November 8, Heidi called Peter regarding tendering Martha's ImClone shares. She says Peter told her "ImClone was a dog" and that, once Martha's Morgan Stanley account was transferred to Merrill, he intended to "set a floor price on ImClone of $60 or $61," as a safeguard.

"He said he'd speak to Martha about [the $60 floor] personally," Heidi testifies. Which is precisely what Martha told the SEC during her February 4, '02 interview. It seems that Peter's January 7 testimony—that the two didn't actually set the sell price until December 21, '01—is merely a clarification of Martha's.

As for the confusion about the tax-loss selling plan, Heidi explains that she had consulted with an outside accountant by the name of McCallister or McAllister about balancing out Martha's '01 tax-loss plan. Ms. Deluca returned from vacation on Dec 26, tallied up the total and realized neither Apple nor ImClone had been sold yet. She assumed they wouldn't be part of the '01 plan. She left again and returned on Jan 2, '02, when she received the ImClone December 27 sale confirmation sheet from Faneuil. The settlement date said January 2, '02. Deluca testified that the accountant had advised her to rely on the settlement date for tax-loss planning, not the date of transaction. So she didn't include ImClone in the '01 report. She did, however, call Faneuil twice during the first week of January, presumably to go over the other stocks Martha sold while Heidi was out. Prosecution objects on hearsay grounds, an objection lost on me. If the purpose is to impeach a previous witness's testimony—which is obviously the case here—hearsay technically should not apply.

Two weeks ago, Faneuil testified that Bacanovic first insisted that tax-loss selling was the reason for the hasty ImClone sale. Faneuil said he knew at the time the story didn't make sense, considering ImClone sold for a gain, but that when Heidi called him ranting and raving in early January about the ImClone sale screwing up Martha's tax-loss plan, he knew without question that Bacanovic was lying. It turns out Faneuil was the one lying, either that or he got his dates mixed up: Until February, Heidi believed she was correct in leaving off the ImClone sale in her 2001 report. It wasn't until February that Heidi realized the accountant had given her bum advice, and that the ImClone sale applied to 2001. That's when she called Faneuil, that's when she was apoplectic. Of course she was—she'd already submitted the '01 tax-loss report to accounting.

But the jury's only heard bits and pieces of this. Cedarbaum, predictably, is worried that if she allows Heidi's complete testimony, the jury will consider her interpretation of events as true rather than testimony only to be used to impeach Faneuil's statement. "Your honor," Morvillo says, "why don't you just instruct the jury to disregard the truth value of Deluca's Faneuil testimony, just like you instructed them with regard to the bad press Martha received after the SEC leaks? You always say you have tremendous faith in the jury's ability to compartmentalize." Ouch. Cedarbaum, for the first time in this trial, is stunned silent.

Deluca ends the day scoring big points for her boss. Prosecuting attorney Seymour repeatedly points to Stewart's Feb 4 testimony—"Heidi and Peter will agree with my testimony as to the $60 sale agreement"—as proof of conspiracy. But then we learn about a conversation between Deluca and Stewart on January 29. Apparently on Jan 28, Martha requested that Heidi compile a list of phone calls made and received from October 2001 to the present (January 2002). Deluca brought the package to Martha the following day, January 29. "Wait," Martha called out before she left. "Heidi, what do you remember about our ImClone conversations?"

"I told her I remembered three things," Deluca testifies. "That ImClone was in her pension plan, that it was part of her tender offer, and that Peter said he'd touch base with her regarding setting a floor price of around $60." This conversation occurred less than a week before Martha's SEC interview; it's this recent discussion with Heidi, Morvillo wants permission to argue, that Martha was drawing from when she testified that, "Heidi and Peter will agree."

Cedarbaum will make her hearsay decisions Tuesday.

Remembrance of Things Pasternak

info@reason.com (Elizabeth Koch) — Fri, 20 Feb 2004 00:00:00 EST

These are Elizabeth Koch's notes on the Martha Stewart trial.

Thursday, Mariana Pasternak, Martha Stewart's supposed best friend, shocked the courtroom by putting these condemning words in Martha's mouth: "Isn't it nice to have brokers who tell you those things?" Today the jury arrives understandably wide-eyed and jittery, anxious to hear the quote in context.

Pasternak arrives in a black tapered suit, her hennaed hair shiny and smooth. But she wavers a bit when she nears the stand, looking glassy-eyed spacey, as if a nudge would send her sprawling. Stewart's lawyer, Robert Morvillo, starts from the beginning, leading her step-by-step from takeoff to the December 30 conversation in question.

"When Ms. Stewart first brought up Sam Waksal, you two were relaxing on the terrace in your hotel in Mexico?"

"Yes."

"Were you sitting in chairs?" Morvillo asks.

"We were sitting. I was in a chaise," Pasternak corrects him.

They discussed family and friends, the events of the day, the fact that here they were once again on vacation together without male companionship. Then Pasternak brought up Sam.

"Martha said he'd disappeared again, that he was walking funny at a dinner party. She told me he'd sold or was trying to sell his stock."

"Did you feel she was telling you inside information?"

"No, I felt like she was worried. I said, 'That's so scary, Martha,' because it sounded like he was having financial problems. When she told me she'd sold her ImClone shares, she sounded regretful, or guilty, out of loyalty to a friend." Pasternak drags her words together, as if her accent has thickened overnight.

Morvillo quickly moves on to the second, most damning, conversation she testified to yesterday. "Do you remember what day this discussion took place, where you were or what time it was?"

"No, I don't recall."

"Do you recall if it was before or after the terrace conversation?"

"No, I don't."

"What do you remember?"

"I remember...I see a scene somewhere on the grounds of the hotel, and but nothing about why it came up."

"Are you sure the statement—"Isn't it nice to have brokers who tell you those things"—is one Ms. Stewart made? Or was it something you thought?"

"It's fair to say I don't know if it was a statement Martha made or if it was a thought in my mind," she echoes quickly.

What?!

Apparently in her testimony to the SEC, Pasternak claimed to be uncertain as to the origin of the comment. Now she's returning to that claim—at least for the duration of Morvillo's cross.

When Schachter redirects, she balks a bit.

"Do you recall telling the government your best recollection?"

"I recall telling the government that if I had to make my best recollection, I'd say Martha said it."

"Is that still your testimony?"

Something shifts in my periphery—it's Martha, taking a giant swig from her green tea bottle.

"Yes. My best belief is that Martha said it." Round three.

Morvillo recrosses, "But you're not sure Martha said it?"

"I remember, all I remember is looking at Martha, seeing her face, as those words appeared in a stream."

"In a stream?" Morvillo asks.

"Yes." A stream. Perhaps she had a vision.

While Stewart's closest ally almost tossed her off the bridge, Douglas Faneuil's friends—the next two government witnesses—stuck to their stories. Zeva Bellel and Eden Warren could both be incarnations of the Madeline storybook figure. Raven-haired and reed-narrow, the respective Vassar and Yale students reek of blue blood with a complex. Zeva, who's lived in Paris for the last four years, is currently freelance writing; Eden describes herself as the "ex-director of a non-profit called Summersearch, an agency that looks after impoverished youth." No mention of what activity currently fills her days. Both were born and raised in Manhattan.

Zeva Bellel, twenty-nine, testifies first. She met Faneuil at Vassar in '96; their friendship blossomed in the following years. When she visited New York early on in 2002, the two spent most of their time at Rob Haskell's apartment (Faneuil's ultimate friend).

"On January fourth, Faneuil arrived home from work very upset," she testifies to prosecutor William Burke. "He said he'd been contacted by the SEC about a stock trade." She repeated what Faneuil told her using almost the precise wording we'd heard in his testimony—that on the morning of December 27, Sam Waksal and family bombarded him with calls, "dumping shares in a heated rush." He explained to Zeva that ImClone's wonder drug had not received the anticipated approval on December 27, and that its share price was expected to plummet.

"Doug said his boss told him to call Martha Stewart and tell her the Waksals were selling their shares. He said he knew it wasn't right to do that, so he paused and asked, 'Are you sure that's okay? Can I do that?' His boss said, 'It's not a matter of okay—just do it.'"

Zeva testifies that in their only other Bacanovic conversation, Faneuil mentioned approaching his boss "to elicit some direction or advice or support" after receiving a call from the SEC. "He asked Peter why the SEC was interested in Stewart's sale, but his boss cut him off. 'Listen, nothing happened, there's nothing wrong with the sale. This is how it happened, this is how it was and it's the truth.' Faneuil said he felt abandoned and betrayed; he knew Peter's story was totally inaccurate."

On cross, Bacanovic attorneyDavid Apfel fails to pin the charge of insider knowledge on Faneuil. "Did he tell you that he knew the FDA would reject ImClone's drug application during the time of the Waksal trades?"

"No. He was explaining why the Waksals were selling shares, just for my information." She's unnecessarily defensive: the jurors are hers. They watch Zeva intently, barely blinking, occasionally scribbling in their notebooks. Apfel asks the witness if she remembers her Aug '02 SEC testimony, during which she claimed that Faneuil told her that Bacanovic had tried reaching Martha himself first. That it was only after discovering she was airborne that Peter asked Faneuil to leave a message for her. She says no, she doesn't recall. "So are you testifying that your memory's better today than it was in Aug '02?" Apfel presses.

"Yes."

Eden Werring's testimony goes much the same way, but more quickly. She spoke to Faneuil while visiting Haskell in April '02. "He came in with Rob one afternoon and seemed very stressed. He said something had happened at work and he had to lie for his boss."

When prosecution's final witness is dismissed, Cedarbaum turns to the jury. "I'm dismissing you for a long lunch. You've all become good friends during the course of this trial," she says, laughing meaningfully. They laugh and nod enthusiastically. "I'll call you when I need you, but in any event, I'll not interrupt your lunch." God forbid.

She wouldn't get the chance anyway—Morvillo and prosecuting attorney Karen Seymour spend an hour and a half debating the legitimacy of the securities charge. Seymour contends that Stewart intentionally misled her investors repeatedly throughout the month of June, most flagrantly during a June 19 "investors meeting." Speaking of misleading, Seymour depicts the conference as an investors only event that Stewart put together herself to bolster her ailing stock price.

"This was not a meeting with People magazine. She assembled investors and actively lied to them about her $60 sell agreement," Seymour argues.

Morvillo's objections—that the June 19th meeting had been scheduled long before the bad press, that Stewart's statement was brief and merely a repetition of what she'd said in two previous press releases, that not to say anything when the public demanded it would also have depreciated the value of her shares—are on target, but incomplete. "As long as it was publicly disseminated that the SEC was investigating her sale, the price of Martha Stewart Living Omnimedia would continue to plummet," Morvillo asserts. Not to mention that what Seymour colors into Martha's stock-holder duping scheme was in fact a mid-year industry conference. It was attended by twenty or thirty other companies, a fact that Bear Stearns equity research analyst Kevin Gruneich. testified to yesterday.

Morvillo's arguments get shaky once he brings in hypotheticals. "The rumor investors really cared about was the Sam Waksal tip. So let's assume for a minute that Martha did lie about the $60 price agreement: A false statement that corroborates a true statement is immaterial." In other words, hypothetically, she responded truthfully with regard to the rumors; the $60 agreement was only a subsidiary (lie) designed to corroborate the truth—her denial of the receiving a tip from Waksal.

"You're slicing the onion awfully thin," Cedarbaum warns. I frankly don't get why he went there. Unless?

Bacanovic's lawyers are up. Their first witness is Kevin Rainin, a self-made man who turned $800 into $295 million. Mr. Rainin's an entrepreneur; he's launched multiple companies in field of medicine, companies that develop medical devices, intraocular lenses and artificial limbs. His testimony amounts to this: "Peter Bacanovic is the best investment banker in the world, and I'm a tough sell." He's embarrassingly effusive, calling Peter a Wunderkid for his ability to check stock prices on his blackberry. He tried to hard, smiled too widely, checked for the jury's approval too many times. Not a great start.

Monday Judge Cedarbaum will let us know which—if any—charges she'll drop. Her most promising comment of the day: "We've focused on the security charge the longest because it's the most problematic." Starting from "novel," that's a step in the right direction.

Swanky FOM Causes Courthouse Ruckus

info@reason.com (Elizabeth Koch) — Thu, 19 Feb 2004 00:00:00 EST

These are Elizabeth Koch's notes on the Martha Stewart trial.

Lots of witnesses today. Testimonies ranged from hardly relevant to crucial, in direct proportion to their entertainment quotient. The mix of quirky personalities, sparring debates, constant jokes and thrilled laughter moved things along and even brought to the courtroom a certain charm. U.S. District Judge Miriam Goldman Cedarbaum regularly asserts her to keep things fair, speedy (hard to believe, I know), and most importantly, entertaining. A bored jury is a hung jury, in my opinion.

Witness #1: Peter Melley, NASD regulator and investigator, finishes with a fizzle

Michael Schachter, the assistant U.S. attorney, tries desperately to tie an announcement Stewart made in a June 19 Martha Stewart Living Omnimedia (MSLO) conference to fluctuations in her stock price. He fails. During the meeting, Stewart briefly announced, "My sale of ImClone stock was entirely lawful; I acted on information available to the public. I met with SEC officers and cooperated in full," a statement she'd be a fool not to make. There was no arguable affect on her stock price before during, or after the conference—its oscillations are arbitrary and could be used to prove anything.

Witness #2: Kevin Gruneich, research analyst for Bear Stearns

Gruneich began covering MSLO on September 24 1999, when the company announced they'd be going public. William Burke, the Number Three prosecuting attorney, asked Gruneich to read sections of the company's IPO disclaimer. It went something like this: "The price of this stock is highly dependent on Martha Stewart's talents; loss of her services would have material adverse affects on business." And further down, "Our success depends on the value of the brand; if Stewart's public image is tarnished, all intellectual property rights connected to her name would depreciate." Prosecution once again suggests that Stewart was more concerned with her stock price than her business, as if providing people with goods and services they want and need— be they instructions on how to weave switches into Christmas wreaths or the appropriate weed-picking posture—has nothing to do with anything. What's prosecution ultimately trying to say—that her company's earnings reached one billion (that is, before the indictment) because she's a scam artist?

At some point during Gruneich's testimony, Burke requests a sidebar. Up until a day or two ago, most jurors took the break as an opportunity to hypnotize themselves with dust motes; now they mingle and giggle, leaning forward or cranking around to gossip with their neighbors. The jury at this point appears anything but fractured—they may even be happy to be here. Happy to be chosen, happy with their team.

After sidebar, Morvillo hardly bothers with crossing.

Witness: Larry Stewart, Chief Secret Service Forensic Scientist (no relation to Martha)

Stewart is peppy, upbeat, bright, and hard not to like. When Burke asks about his expertise, he says, "I was bestowed the title of national ink expert, of all things," he says, deprecating his position somewhat disingenuously—he obviously not only takes great pride in what he does, but has contagious passion. Enough to keep a courtroom full of restless reporters and saturated jurors spellbound. He explains the tests he performed on the December 21 worksheet Bacanovic used to prove his $60 sale agreement with Stewart, tests that would determine whether its various ink notations can be sourced back to the same pen. The first examination involved infrared testing, which uses light outside our sight range to differentiate between seemingly same-colored inks. The "@60" notation evanesced, while the other markings appeared black. A second test used chromatography to determine ink recipes, a process that breaks ink up into its various ingredients. Stewart's preliminary conclusion, one he submitted in an August 2002 report to the government, was that Bacanovic used a different pen to make the @60 notation from all the other entries.

Peter Bacanovic's law firm of choice—Goodwin Proctor—certainly has a style: plow through the gate like bulls, straight for the witness's gut. Richard Strassberg, Bac's Number Two attorney, attacks Stewart using the same tactic his co-lawyer, David Apfel, used against Douglas Faneuil.

"Are you aware," Strassberg voice climbs with sarcasm, "of the ASTM ink strandards?"

"Yes," Stewart says. "I wrote them." The jury loves it.

Strassberg's voice tips a pitch higher, "Is it true, Mr. Stewart, that these tests do not enable you to match pen to ink?"

Stewart starts to qualify.

"Please, Mr. Stewart, just try to stay with the question. Isn't it true that all those dark marks could have been made with six different pens. Like, say, six Bic pens?"

"If the ink was patented, it's possible. But..."

"Thank you, Mr. Stewart." Strassberg's exasperation levels may be a bit overblown—he jumps down the witnesses throat before he can speak. But it turns out the attorney may have had a premonition. He's certainly met his match when it comes to word mastery: Stewart's sly and slick, so smooth you're convinced he's saying something significant when he's actually hiding under the table.

Strassberg: "Was "@ 60" the only mark that evanesced under the infared test?"

Stewart: "It was the only entry..."

Strassberg: "Will you please attempt to answer my question? Was it the only mark that shone light rather than dark? Wasn't there a dash?"

Stewart: "If you'd let me define 'entry'...'"

Strassberg: "Was there a dash, Mr. Stewart? Yes or no."

Unlike David Apfel's bulldog assault on Douglas Faneuil, Strassberg's approach works with Stewart. The ink expert sneers and gets defensive when he's not masterminding the interaction. Stewart attempts to reassert himself, but comes off like a shady dealer.

"Are you aware, Mr. Stewart, that you're required to turn over all the material you tested to the defense team?"

Stewart justifies and equivocates.

"When you issued your report in August 2002, you said you tested all the "entries," as you define the word. Did you indicate anywhere that there were several markings on the page you did not test?"

He continues to justify and equivocate.

"When in November of 2003, you were asked to oversee the defense expert's testing of the worksheet, did you think to point out the dash you'd left untested?"

"That was not my job. My job was to make sure the testing was done according to standards of our agreement."

"So you never raised a peep about anything having to do with a dash, did you, Mr. Stewart?"

"No," he finally admits, "I did not raise a peep about the dash."

The jurors could not be more delighted with the sparring. Their faces light up like they're watching high comedy—they can't decide whether to write frantically or keep their eyes on the scene. It would pain them to miss something.

Witness: Mariana Pasternak, friend of Martha. Accompanied her on trip to Mexico and Panama during the Christmas holiday of 2001

Pasternak, a fifty-something, well preserved beauty with high Slavic cheekbones and a perhaps Hungarian accent, claims that up until Martha's indictment, they spoke every day and saw each other several times a week. They frequently took trips to Peru and various exotic islands, and she knew both Bacanovic and Waksal from dinner parties she attended with Martha.

On December 27, 2001, Pasternak testifies softly, her accent barely decipherable at times, she, Martha, and Kevin Sharkey (an editor at Martha Stewart Living and a good friend of both), chartered a plane to Mexico. When they stopped off in Texas to refuel, the passengers waited in an airport lounge. Pasternak heard Martha on the phone, speaking in "raised tones," about what and to whom she couldn't make out.

Several days later, on the 28th or 29th, the two women were gossiping in their suite.

"How's Sam [Waksal]?" Pasternak asked.

"He's disappeared again," Martha apparently said. Pasternak only vaguely recalls the rest of the conversation—Martha described Waksal as "talking" or "walking" funny at a recent dinner party, that he was selling or trying to sell his stock, that his daughter was as well, but Merrill Lynch wouldn't perform the trade. "Martha said, 'His stock is going down and I sold mine," Pasternak says in her soft voice. Nothing damning yet.

But when Shachter asks if throughout the trip, Stewart said anything else about Sam or brokers in general, Pasternak pipes up, "One thing. She said, 'Isn't it nice to have brokers who tell you those things?'" And suddenly the jury is dismissed.

You can imagine the confusion. When did Martha say that? What was the context?

When Stewart attorney Robert Morvillo stands, predictably about to blow a gasket, Cedarbaum cuts him off.

"The last statement was not in furtherance of the conspiracy. I will rule on it tomorrow. Court dismissed."

So no, Pasternak was not necessarily insinuating that Martha admitted to receiving insider information from Bacanovic. We have no idea what she meant, since Shachter provided no context for the assertion. Between the rest of Pasternak's testimony and that on Faneuil's two friends, tomorrow will be a big day.