Prosecution Rests In Stewart Trial

The government rested its case against Martha Stewart and her stockbroker Friday, after a critical prosecution witness wavered slightly about testimony that had damaged the homemaking mogul.

On Thursday, Mariana Pasternak testified Stewart told her shortly after selling her ImClone Systems stock that she had known ImClone founder Sam Waksal was trying to dump his shares. Pasternak also testified that Stewart told her in a separate conversation: "Isn't it nice to have brokers who tell you those things?"

Under cross-examination Friday from Stewart's lawyer, Pasternak conceded about that remark: "I do not know if that statement was made by Martha or if that was just a thought in my mind."

Prosecutor Michael Schachter, trying to restore Pasternak's credibility, asked what her "best belief" was about the remark. Pasternak answered: "That Martha said it."

Pasternak did not waver in the central element of her testimony

that Stewart was aware when she sold her ImClone stock on Dec. 27, 2001, that Waksal had been trying to sell as well.

U.S. District Judge Miriam Goldman Cedarbaum said she would hear arguments Monday on whether on whether some charges in the case should be thrown out, but indicated she was unlikely to toss out the entire case.

"We all understand that there are substantial portions of this indictment that will not be dismissed — at this point, in any event," she said.

Robert Morvillo, Stewart's lawyer, has been particularly adamant about a securities fraud charge that accuses Stewart of deceiving investors in her own company, Martha Stewart Living Omnimedia, by publicly asserting her innocence. Cedarbaum called that count "the most problematic" in the indictment.

The government contends Stewart made several statements in June 2002 to prop up the stock price of her company. At the time, Stewart stood to lose $30 million for every dollar the stock dropped.

"She knew and she hoped investors would rely on her word," said prosecutor Karen Patton Seymour.

Stewart told investigators in April 2002 that she had no memory of being told about Waksal just before she sold. Stewart and her co-defendant, stockbroker Peter Bacanovic, claim they had a standing agreement to sell ImClone when the stock price fell to $60. The government contends that was a cover story.

Also Friday, prosecutors sought to bolster the testimony of Douglas Faneuil, a former Merrill Lynch assistant and the government's star witness. Faneuil testified earlier that he passed the tip about Waksal from Bacanovic, his boss, to Stewart.

Faneuil had initially supported the $60 story, but later agreed to testify against Stewart and Bacanovic — an indication, the defense says, that he is a liar.

Two friends of Faneuil testified Friday that he was distraught in January 2002, long before he changed his account, and that he confided in them that he was being pressured by his boss to lie.

There was no immediate indication of whether Stewart or Bacanovic would take the stand.