Corporate Scandals

Defense Plays Dead

Prosecution scores even more points as Martha lawyers stumble to the finish line

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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.

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