Reliability of gov't witness is in question

A federal judge in Gotham has postponed testimony by Douglas Faneuil, the key witness against Martha Stewart and her broker Peter Bacanovic, after a new document raised questions about the story Faneuil gave to prosecutors. He was originally going to take the stand Thursday.

Pundits noted that aside from any eventual findings, the delay itself is a blow to prosecutors and a boon to the defendants. “The entire first week of the trial, the jury is not hearing from anyone who was involved firsthand with what happened. They’ll be asking ‘Where’s the beef?’ ” said John Siegal, an attorney for Proskauer Rose in New York.

Faneuil, Bacanovic’s former assistant at Merrill Lynch, cut a deal with prosecutors last year and agreed to testify against his former boss and star client.

In opening arguments Tuesday, prosecutor Karen Patton Seymour told the jury Faneuil would testify to the following: that on Dec. 27, 2001, Bacanovic, who was away on vacation, ordered Faneuil to call Stewart and advise the domestic diva to sell her shares of biotech company ImClone because ImClone CEO Sam Waksal was dumping his stock that day. She did.

Waksal, also a Bacanovic client, was selling his shares through Faneuil. It was later established that Waksal’s sales were based on inside information that the FDA had rejected ImClone’s new cancer drug Erbitux. Waksal is now in jail.

Accused of lying

Stewart and Bacanovic are accused primarily of conspiring to concoct a story to explain her sale — that they had previously agreed she would sell the shares if they fell below $60.

Defense lawyers said Thursday that they had received a memo the night before in which a former lawyer of Faneuil’s says it’s not clear if it was Bacanovic or Waksal who told Faneuil to tip off Stewart. Stewart and Waksal were friendly.

The government suggested it was the former lawyer, Jeremiah Gutman, who is in his 80s, who couldn’t remember, not Faneuil.

Defense lawyers have asked for at least a week to investigate.

The development is particularly welcome for Bacanovic. “It’s good for Martha too, because it goes to credibility. If he’s not sure, it lends credence to the theory that this is a guy who was suggestible by the government,” Siegal said.

Shares of Martha Stewart Living Omnimedia, which tend to serve as a barometer for how investors think her day in court went, rose 2.06% Thursday to close at $12.91.

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