Corporate Scandals

Remembrance of Things Pasternak

Damning testimony may have been monster from the id, says Martha's less-successful hanger-on "friend"

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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.

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