Martha 'Star' Witness On Hold

A federal judge Thursday postponed the testimony of the government's star witness against Martha Stewart after defense attorneys accused prosecutors of withholding information about the circumstances of the stock sale at the heart of the case.

The judge postponed the testimony after Richard Strassberg, the lawyer for broker Peter Bacanovic, said doubts were raised by a 2002 FBI statement given by Jeremiah Gutman, the former lawyer of Douglas Faneuil, the star witness.

Gutman's FBI statement said that Gutman was unsure whether Bacanovic, Stewart's co-defendant, or ImClone Systems founder Sam Waksal had asked Faneuil to tip Stewart that the Waksals were selling ImClone shares on Dec. 27, 2001, Strassberg said in Manhattan federal court.

Strassberg said he had just received the information Wednesday night, and that it was inconsistent with the government's theory — that Bacanovic ordered Faneuil to tip Stewart.

Strassberg also sought to have the charges against Bacanovic thrown out altogether, but U.S. District Judge Miriam Goldman Cedarbaum denied that request.

The discussion came after Cedarbaum ordered the government late Wednesday to turn over Gutman's notes to lawyers for Stewart and Bacanovic.

Stewart and Bacanovic were hoping to use the notes to find material to damage Faneuil's credibility.

These latest developments further cement the belief that jurors will have to grapple with two distinct images of the government's star witness when and if he takes the stand: Was he a star-struck liar, or an impressionable young man caught up in someone else's crime?

The competing perceptions put forth by lawyers in the case will be pivotal.

Prosecutors say Faneuil passed a tip from broker Peter Bacanovic to Stewart on Dec. 27, 2001, that the family of ImClone Systems founder Sam Waksal was trying to dump the stock.

Stewart sold her ImClone share that day, just before it plummeted on a negative Food and Drug Administration report on an ImClone cancer drug.

Stewart is charged with obstruction of justice, securities fraud, lying to investigators and conspiracy — counts that carry a total of 30 years of prison time. Bacanovic faces up to 25 years if convicted. The sentence for either would likely be significantly reduced under federal guidelines.

Faneuil, then 26, initially supported Stewart's and Bacanovic's account that they had a pre-existing arrangement to sell the stock when it fell to $60. Now he supports prosecutors' version — and will be the linchpin of the government's case.

"I think his youth helps the government," said David Berg, a Houston white-collar attorney. "And the fact that he was trying to preserve his job. It's the good-little-soldier scenario."

But even before Faneuil testifies, defense attorneys for Bacanovic and Stewart tried to punch holes in his credibility, devoting parts of their opening statements to portraying him as a liar.

"He's changed his story now three times, and they're going to have to decide -- a jury is going to have to decide, if he's a believable witness," author Alex Prud'homme, who wrote a book on the ImClone scandal, told CBS News Early Show national correspondent Jon Frankel.

Bacanovic's lawyer, Richard Strassberg, went so far as to describe Faneuil as "fixated" by Martha Stewart, bragging to friends about even the most casual contact with her at Merrill Lynch.

Strassberg suggested that Faneuil, hoping to impress Stewart, decided on his own to tip her about the Waksal sales — which Faneuil knew about from calls earlier in the day.

"He did it because he was trying to be the big man," Strassberg said. "He did it out of inexperience, he did it out of foolishness. But he did it — not Peter."

Prosecutor Karen Patton Seymour hinted in her opening statement that Faneuil was easily influenced by Bacanovic, his boss at Merrill Lynch.

She also described a restaurant meeting after Stewart's sale in which Bacanovic tried to soothe Faneuil, telling him the burgeoning government investigation of the sale would come to nothing.

Attorneys for Stewart and Bacanovic contend he was willing to tell the government what it wanted to hear in exchange for a plea deal — an assertion prosecutors will likely try to head off in their initial questioning, Berg said.

"There are mostly women on the jury, and the relationship you want to arouse is a mother's natural instinct to forgive a son," Berg said. "You say to him: `So you made a mistake the first time. Why did you change your mind?' And his answer could be: 'Because I needed to tell the truth."'

Stewart attorney Robert Morvillo's cross-examination of Faneuil also will give him a chance to clarify a point he left vague in his opening statement — whether Stewart was actually tipped that the Waksal family was selling.

In court Tuesday, Morvillo said only that Stewart was truthful when she told investigators in April 2002 that she did not recall such a tip.

While he did not say Faneuil had tipped Stewart, Morvillo did use his opening statement to imply that the assistant was confused by all the activity on the day of the sale — including reports of widespread selling of ImClone stock.

"I would suggest to you that he was overwhelmed on that day by all of the things that were swirling around him," Morvillo said.

Also on Thursday, Luciano Moschetta, a Merrill compliance officer, testified for a second day about privacy rules the brokerage requires its financial workers to follow. Court was suspended Wednesday because of a snowstorm.

Moschetta's testimony was part of the government's effort to show that Bacanovic broke firm policy by passing information about one of his clients, Waksal, to Stewart.

The government claims Stewart sold 3,928 shares of ImClone on Dec. 27, 2001, because of a tip that the Waksal family was selling its shares. Stewart and Bacanovic say they had a prior plan to sell when the price fell to $60.