Corporate Scandals

The Cop, the Flack, the Snoop, but no Lover

Courtroom stalemate as prosecution promises the end is nigh; friends of Faneuil on deck

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

The buzz in the courtroom this morning was all about Judge Miriam Cedarbaum. The Second District Court of Appeals reprimanded the judge for banning reporters from the jury selection process. Cedarbaum's concerns were that potential jury members wouldn't give frank answers if reporters were present, that they'd be self-conscious and intimidated, that—considering the media's preoccupation with Martha's clothing—they might fear being chastised for their own. I kid you not; it's what the lady said. The Second District Court ruled that her closure order did nothing to protect the defendants' right to a fair trial, for media is "a vital means to open justice." The Public has a right to know what goes on in the courtroom, how—and if—our justice system functions.

Obviously the jury interviews concluded long ago; the ruling has no affect on this case, but hopefully the handslap will make judges think twice before keeping media in the dark about an important judicial process.

Witness: Agent Ryan, FBI investigator, assigned to examine phone logs of suspicious activity regarding December 27 ImClone trades

Yesterday prosecution insinuated that since Peter Bacanovic's notes made no mention of the $60 sell agreement prior to Dec 27, the defendants must be lying. On cross, Bacanaovic's lawyer, David Apfel, points out that his client was not a consistent note-taker, that not only did he often neglect to record client activity but occasionally left off his most substantial trades. Ryan verifies that Bacanovic did not record activity in Aliza Waksal's account on Dec 27, nor did he mention her unusually large money transfer during January 2002. Nor do his November notes make any reference to Stewart's transfer from her Bear Stearns and Morgan Stanley accounts to Merrill Lynch. If Bacanovic were to record anything, you'd think that would be it. Apfel continues this line of questioning, "You don't have any idea what Bacanovic recorded in his account statements, do you? Or his worksheets? Or what he and Stewart discussed in person?"

"No, no idea," Ryan admits.

The jury seems distracted; everyone but Number One, Number Three and Number Four fidgets and rolls his eyes ceiling-ward, whether out of irritation at Apfel or the subject matter I shouldn't speculate. But I will. Apfel likes to ask absurd questions witnesses have no means of answering, like, "Agent Ryan, there were calls made to Merrill Lynch on December 27 you did not record on your phone chart, correct? What were they?" Huh? Instead of moving on, Apfel—in his profound desperation—continues to hammer the witness with uncreative variations of the same question until Cedarbaum steps in. Which never takes long.

"Mr. Apfel," she shouts, making two jurors jump. "We're taking up the jury's time!"

"Yes, Your Honor," he bows, and asks the same damn thing.

Witness: Greg Blatt, General Council and ex-president of Martha Stewart Living Omnimedia in 2002

This is Assistant U.S. Attorney Michael Schachter's witness, one he intends to use to verify the securities' fraud charges. But Martha's lead attorney Robert Morvillo does the real work. On cross he addresses the June '02 influx of articles speculating on Stewart and Waksal's ImClone-related trading activity, rumors that drove Stewart to publicly proclaim her innocence.

"Is it true, Mr. Blatt, that in early June there was a building crescendo of commentary in the media on Congressional leaks accusing Ms. Stewart of insider trading?"

"Yes."

"What kind of business concerns did this media attention make for you?"

Blatt explains that advertising drives Martha Stewart Living Omnimedia, that negative publicity affects everything from consumer purchases to business negotiations, that by June 8, '02, his paramount concern was for Martha to issue a public statement as soon as possible. Stewart's team met on June 8 to discuss and debate the content of the release. They eventually wrote up a draft, but her lawyers were apparently dragging their feet. Blatt says he became insistent when The New York Times quoted Rep. James Greenwood (R-PA) — chairman of the SEC panel—as saying, "There was lots of ImClone stock dumped on December 27, mostly by people on vacation. You're telling me everyone got the urge to sell all of the sudden? I believe these trades were made as a result of inside information, and that's illegal." He mentioned her "romantic dealings" with Sam Waksal, insinuating that the nature of their relationship made knowledge of company's inner workings not only possible but probable. A straight-out accusation, based on no proof whatsoever. What businesswoman wouldn't defend herself?

After Waksal's arrest on June 12, Blatt says he had to harass Stewart's lawyers into issuing a statement immediately. "They'd stopped calling me back," he shrugs. By the end of the day, Martha's team released a report that claimed Stewart "did not have any nonpublic information about ImClone, nor did [she] speak to Sam Waksal prior to trading on December 27." Martha Stewart Living Omnimedia issued a similar statement on June 19.

On redirect, Schachter asks Blatt to read from various articles published on June 7. Susan Magrino, Martha's spokesperson, is repeatedly quoted as saying, "Martha Stewart did not receive any nonpublic information. Her transaction was entirely lawful."

"Mr. Blatt," Schachter asks, "did you have any roll in Magrino's statement in these articles?"

"No," Blatt admits. Schachter's point, that Stewart leapt to issue a public statement so her stockholders wouldn't lose faith after all the negative press, seems weak. Once again, who wouldn't?

Witness: Peter Melley, investigator with the National Association of Security Dealers. Maintains an audit trail of all trading activity

Both Schachter and John Cuti, Martha's number three attorney, struggle to find patterns in ImClone prices that serve their clients' interests. Schachter has Melley read three dates—October 29, October 30, and November 6—on which ImClone's price fell below $60, insinuating that if Peter and Martha truly had a $60 sell agreement she would have dumped ImClone then. BUT, according to Bacanovic's testimony to the SEC on February 13, 2002, they didn't even make the agreement until December 20, during Martha's comprehensive portfolio review. On cross, Cuti suggests that since the price hovered between $70 and $65 throughout December '01, not dipping to $60 until midday December 27, selling the moment she did makes perfect sense. Which it does, if the jury believes Bacanovic's SEC testimony.

Schachter also makes an attempt to connect Martha Stewart's press release dates to the price of her stock, maintaining that regardless of the actual rise and fall of Martha Stewart Living Omnimedia, her intention was to boost the price. His whole line of questioning is nonsensical: The price of her shares fluctuated throughout June 2002 without any consistency.

Today was a wash.

Seymour says prosecution will rest tomorrow, but considering they have six or seven witnesses pacing in the green room, it's safe to say the claim is bogus. Expect to hear from two friends of Douglas Faneuil, the prosecution's lead witness (not his boyfriend Rob Haskall, unfortunately), two friends of Martha (one being Mariana Pasternick, an ink expert), and at least one other.