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Martha Team Grills Brokerage Aide

The star witness against Martha Stewart testified Monday he did not believe at the time that he was doing anything wrong when he passed her the tip that led her to sell ImClone Systems stock.

Former brokerage aide Douglas Faneuil, who handled the stock sale in 2001, also testified the homemaking mogul never encouraged him to lie.

Faneuil was asked by Stewart lawyer Robert Morvillo whether he knew he was violating Merrill Lynch & Co. policy when he gave Stewart the tip — that ImClone founder Sam Waksal was trying to dump his shares in the company.

But Faneuil said he only thought about the violation later, and he repeated that Stewart's broker at the time, Peter Bacanovic, had ordered him to give Stewart the tip and encouraged him to lie about it later.

"I would say because Peter told me to do it, I did not think I was doing anything wrong," Faneuil said.

Faneuil, 28, was cross-examined by Morvillo for several hours Monday before completing his testimony. It was his fourth day on the stand, and the start of the third week of Stewart's trial on charges of obstruction of justice and securities fraud.

Later in the day, the government began questioning Ann Armstrong, Stewart's personal assistant.

On Dec. 27, 2001, Faneuil handled both Stewart's sale of ImClone and an earlier request by Waksal's accountant to transfer Waksal's shares into the account of his daughter, Aliza.

Faneuil has testified both events made him uneasy. But Morvillo, trying to damage the witness' credibility, questioned why he did not immediately alert Merrill officials that there might have been wrongdoing.

"Were you deliberately attempting to assist two of your customers in violating the insider-trading laws?" Morvillo asked.

"At the time I was attempting to be a client associate, take clients' orders, do what Peter told me to do," Faneuil answered. "I would say no, I was not deliberately attempting."

Stewart and Bacanovic are accused of repeatedly lying to investigators about why Stewart sold her 3,928 shares of ImClone. Stewart is also accused of deceiving investors in her own media company about the ImClone probe.

A tough decision lies ahead for the defense -- deciding whether or not to put Martha Stewart on the stand. If her attorney can't take the shine off the government's star witness, she may need to testify and that could be recipe for disaster, reports CBS News Correspondent Sharyn Alfonsi.

"We don't know how she is going to hold up, and (Morvillo) doesn't either, whether she gets arrogant or angry under cross-examination," said legal expert Leslie Crocker Snyder, a former New York state supreme court justice.

Faneuil has insisted that Bacanovic ordered him to tip Stewart about Waksal. He says he never knew of any pre-existing arrangement between Stewart and the broker to sell ImClone when it fell to $60, as they have asserted.

ImClone stock dropped sharply four days after Stewart sold, when news emerged that its highly touted cancer drug had been rejected by the government.

Stewart's secretary broke down in tears on the witness stand Monday as she began to describe a phone conversation with the homemaking mogul on the day she sold her ImClone Systems stock.

The judge overseeing the trial ended the day's proceedings 15 minutes early when Armstrong could not continue her testimony.

Armstrong was answering questions from a prosecutor about relaying a message to Stewart from her stockbroker on Dec. 27, 2001, that "ImClone is going to start trading downward."

Armstrong said she first talked with Stewart — who was checking in during a plane refueling on the way to a Mexican vacation — about how each had spent the holiday season.

"I thanked her for the plum pudding she sent home," Armstrong said through sobs. U.S. District Judge Miriam Goldman Cedarbaum called a five-minute recess, then adjourned the trial for the day.

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