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Martha Witness Back On Hot Seat

Defense lawyers in the Martha Stewart trial began grilling the government's star witness, emphasizing his history of lying to investigators and coaxing an admission that he has repeatedly used illegal drugs.

The lawyers began cross-examining Douglas Faneuil, a former Merrill Lynch & Co. assistant, on Wednesday after he testified against the homemaking maven and her former stockbroker, Peter Bacanovic.

"He did some damage yesterday," said former New York State Supreme Court Justice Leslie Crocker Snyder on CBS News' The Early Show Thursday. "He was very good. But of course he was very well prepared by an excellent prosecution team, so we would have to expect that."

Faneuil claims he passed a secret stock tip to Stewart on Dec. 27, 2001, at the behest of Bacanovic. That led her to dump all her shares of ImClone Systems. The pair are accused of lying to investigators about why the sale took place.

That was when he was most animated, reports CBS News Early Show National Correspondent Jon Frankel — when he was describing Bacanovic pressuring him into supporting two separate cover stories.

"I like animation. To me it shows credibility," attorney Todd Gabor told Frankel.

Under questioning from Bacanovic lawyer David Apfel, Faneuil admitted on the stand that he has repeatedly used marijuana and Ecstasy — and on rare occasions cocaine and the party drug ketamine, also known as Special K.

But asked whether he used any of those drugs while on the job at the brokerage, Faneuil replied: "Absolutely not."

In painstaking detail, Apfel also walked Faneuil through some of the dates of his many meetings with the government since he changed his story in June 2002 and implicated Stewart and Bacanovic.

In early 2002, Faneuil had supported Stewart and Bacanovic's version of the stock sale — that they had a pre-existing arrangement to sell Stewart's 3,928 ImClone shares when the price fell to $60.

Apfel also appeared to suggest that Faneuil was cooperating with the government in part to avoid prosecution for his drug use. Faneuil said he hoped he would not be charged with drug offenses.

"Just like they have given you assurance that if you cooperate, they won't go after you for the lies that you told in January and March of 2002, is that right?" Apfel asked.

"As long as I tell the truth now," Faneuil answered.

Cross-examination of Faneuil, 28, by Apfel and by Stewart's lawyers was expected to continue Thursday, and is likely to extend into Monday. Court will not be in session Friday.

"Can they shake that credibility of Doug Faneuil? If they can't, I think it puts a lot more pressure on both Martha and Bacanovic to testify," attorney Greg Markel told CBS News. "If he comes across and holds up on cross examination I think they have to contradict him."

How the jury rates Faneuil's credibility is expected to be a critical component of how they judge whether Bacanovic and Stewart intended to break the law and lie to investigators.

On Wednesday morning, Faneuil delivered the most damaging testimony yet against Stewart, saying he had tipped her — on Bacanovic's orders — that ImClone founder Sam Waksal was dumping his own ImClone shares.

"Peter thought you might like to act on the information that Sam is selling all of his shares," Faneuil said he told Stewart in the call.

"All of his shares?" Faneuil said Stewart answered.

Faneuil said Stewart asked him for a quote on ImClone stock, then declared: "I want to sell." Faneuil sold Stewart's shares immediately, at proceeds of more than $225,000.

The next day, the government released a negative report about an experimental ImClone cancer drug. The report sent ImClone shares down by nearly 20 percent. The government estimates Stewart saved $51,000 by getting out early.

Snyder says the government often uses cooperating witnesses like Faneuil.

"Usually they're criminals themselves and they've lied, so this isn't unusual. But what's fascinating here is he wasn't being prosecuted. He hadn't been arrested or indicted when he decided to become clean. He says it was because he was feeling a pang of conscience. But, really, he wasn't being prosecuted then," Snyder told co-anchor Harry Smith. "What is the defense going to say his motive was? What was his motive to suddenly come clean?"

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