Corporate Scandals

Swanky FOM Causes Courthouse Ruckus

Regulator builds to stunning anticlimax; ink-stained wretch dashed to pieces; Pasternak bombshell causes sudden death

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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.