Friday, January 30, 2004

Key testimony in Stewart case delayed

By Erin McClam
The Associated Press

NEW YORK - A federal judge placed a roadblock in the government's case against Martha Stewart on Thursday, delaying the testimony of its star witness and chastising prosecutors for withholding information that might undermine the witness' credibility.

The decision by U.S. District Judge Miriam Goldman Cedarbaum came moments before Douglas Faneuil, the former brokerage assistant who handled the stock sale at the center of the trial, was to take the stand.

The ruling disrupts the prosecution and provides the defense with ammunition in its attempt to discredit the young assistant.

Faneuil is expected to testify that he gave Stewart a secret tip from her stockbroker that led the home decorating and style maven to sell almost 4,000 shares of ImClone Systems stock just before it plummeted on a negative report about its most important drug.

But late Wednesday night, prosecutors provided defense lawyers with a document that raises doubts about whether the stockbroker ordered that the tip be passed on - and whether Faneuil himself recalls the episode clearly.

"I do think that the government should have turned over this information sooner," Cedarbaum said. But she refused a request by Bacanovic's attorney to declare a mistrial or dismiss charges against his client.

Cedarbaum delayed Faneuil's testimony until Thursday to give the defense time to review the document and revise its case.

The government says Bacanovic told Faneuil to tip Stewart Dec. 27, 2001, that ImClone founder Sam Waksal was selling his shares.

Stewart and Bacanovic claim they had a pre-existing agreement to sell ImClone if it fell to $60 per share.

The newly disclosed evidence centers on an interview that Jeremiah Gutman, Faneuil's former attorney, gave to federal authorities in January 2003.

An FBI account of the interview says Gutman told investigators that Faneuil had said "he had been instructed by Bacanovic or Waksal to pass information on to Martha Stewart about ImClone."

Prosecutors suggested in court Thursday that the document shows only that Gutman, who is more than 80 years old, does not have a clear recollection of Faneuil's account.

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