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Martha Team Confronts Witness

The star witness against Martha Stewart testified Monday he did not believe he was doing anything wrong when he gave her a tip that led her to dump stock in 2001.

The testimony from brokerage assistant Douglas Faneuil came as Stewart's trial resumed in Manhattan for its third week.

Faneuil said he only realized later that he was violating Merrill Lynch & Co.'s policy when he alerted Stewart that ImClone Systems founder Sam Waksal was trying to sell his shares.

Faneuil has already testified that Stewart's broker and codefendant, Peter Bacanovic, ordered him to give Stewart the tip. "I would say because Peter told me to do it, I did not think I was doing anything wrong," said Faneuil, 28.

The answers came as Stewart lawyer Robert Morvillo attempted to separate Stewart from the discussions Faneuil and Bacanovic had on Dec. 27, 2001, the day Stewart sold ImClone stock.

"You were never asked by Martha Stewart to tell a lie, were you?" Morvillo asked.

"Correct," Faneuil replied.

Stewart and Bacanovic are accused of repeatedly lying to the government about the circumstances of the sale. They claim they had a pre-existing deal to sell ImClone shares when it fell to $60.

ImClone stock dropped sharply four days after Stewart sold, when news emerged that its highly touted cancer drug had been rejected by the government. But Stewart is not criminally charged with insider trading.

Earlier Monday, the judge denied a request by Morvillo to question Faneuil about his drug use on a trip to Jamaica in April 2003.

"There is no evidence that the witness changed his version of the facts after the holiday in Jamaica," said U.S. District Judge Miriam Goldman Cedarbaum.

Cedarbaum already had denied the request once before, blocking the defense from suggesting the government should have ended its cooperation agreement with Faneuil when he continued using drugs.

Faneuil has also admitted to past use of cocaine, Ecstasy and the party drug ketamine.

Faneuil testified last week that Bacanovic, desperately trying to protect a lucrative career at Merrill, pressured him into initially lying to investigators. Faneuil changed his story in June 2002 and struck a plea deal with the government.

Faneuil, in laying out his story last week before the courtroom in New York, also painted another picture: of Stewart as quick-tempered and hard-to-please, qualities which while not illegal, could conceivably dent the defense.

On Thursday, Bacanovic's lawyers introduced e-mails in which Faneuil described Stewart as yelling and cursing at him. In one, he told a friend that he had defended himself and "Baby put Ms. Martha in her place."

The lawyers were hoping to show that Faneuil hated Stewart, was fixated with her and was out to get her.

As Stewart's lawyers get their first crack at cross-examining Faneuil, says CBS News Legal Analyst Andrew Cohen, credibility is the issue.

"The question isn't whether jurors will be willing to nominate Stewart for Miss Congeniality," says Cohen. "The question is whether Faneuil's testimony about Stewart's mean streak will help convince jurors that she lied to the feds when they asked her about her role in the stock sale. Obviously, Faneuil's story doesn't help Stewart. But how much does it hurt?"

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