By Erin McClam
The Associated Press

NEW YORK - With an investigation looming, Martha Stewart sat down at her assistant's computer and altered a record of a message left by her stockbroker about ImClone Systems stock, the assistant testified Tuesday.

Stewart immediately stood up and ordered the message restored to its original wording, Ann Armstrong said.

The original message read: "Peter Bacanovic thinks ImClone is going to start trading downward." It reflected a call by Bacanovic Dec. 27, 2001, the day Stewart sold her 3,928 shares in the company - and the day before the company announced a negative decision from government regulators about an ImClone cancer drug.

Armstrong testified that Stewart saw the message Jan. 31, 2002, and replaced it with the words: "Peter Bacanovic re imclone."

"She instantly stood up, still standing at my desk, and told me to put it back to the way it was," the assistant testified at Stewart's stock-fraud trial in Manhattan federal court.

Armstrong told jurors she was "startled" by Stewart's conduct and that Stewart had never before altered a message in the log, which Armstrong maintains at Martha Stewart Living Omnimedia, Stewart's media company.

The government alleges that Stewart was tipped by Bacanovic that the family of ImClone founder Sam Waksal was trying to sell his shares on Dec. 27. She is charged with obstruction of justice and securities fraud, among other counts.

Stewart and the broker say they had a pre-existing deal to sell ImClone when it fell to $60 a share.

Prosecutors walked Armstrong through her memory of January and early February 2002 in the hope of convincing jurors that Stewart was worried about the circumstances of her sale of ImClone.

They introduced a calendar entry showing Bacanovic scheduled a breakfast with Stewart Jan. 16, 2002, about three weeks after the stock sale.

Stewart had met with or spoken to her lawyers on each of the three days before she changed the log, Armstrong said. Four days later, Feb. 4, Stewart met with government investigators for the first time in the ImClone probe.

According to a federal indictment, Stewart claimed in that interview with investigators that she did not know whether Bacanovic's message from Dec. 27 had been recorded in Armstrong's log.

Helene Glotzer, a Securities and Exchange Commission lawyer, testified that Stewart claimed in February she did not recall any record of Bacanovic's message from the day of the sale.

Stewart also claimed that she had sold her ImClone stock in a call with Bacanovic, Glotzer said. Bacanovic's assistant, Douglas Faneuil, handled the sale.

Stewart also said she did not recall hearing that Waksal and his family were trying to dump ImClone stock, Glotzer said.

She said Stewart, at the end of the February interview, said: "Can I go now? I have a business to run." She described Stewart's tone as "curt, annoyed."

The altered message log represents one of the most critical pieces of evidence in the government's case against Stewart. Another is a worksheet that prosecutors say Bacanovic doctored after the stock sale to make it appear he and Stewart had previously discussed a plan to sell ImClone when it hit $60 a share.

Monday, Armstrong broke into tears on the stand. Tuesday, she maintained her composure.