Corporate Scandals

Golden Slumbers

Judge and jury catch Zs during closing arguments! Martha bucks up as lawyer slimes shirker Faneuil

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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.

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