NEW YORK – Prosecutors began laying the foundation of their case against Martha Stewart, while her attorney suggested the government’s pursuit of the homemaking queen was reminiscent of George Orwell’s Big Brother novel ”1984.”
Stewart’s trial got under way Tuesday before a jury of eight women and four men. They heard three hours of opening statements that outlined starkly different portrayals of Stewart’s sale of nearly 4,000 shares of biotechnology company ImClone Systems.
The prosecution’s first witness, a Merrill Lynch & Co. official, testified that Stewart’s ex-stockbroker – accused of tipping Stewart off that ImClone founder Sam Waksal was dumping his company’s stock – had signed an agreement prohibiting firm employees from discussing one client’s transactions with another.
Prosecutors say Stewart and the broker, Peter Bacanovic, later lied to cover up the tip. Waksal later admitted he had early word of a negative government report about ImClone.
The two claim they had struck a deal earlier in December to sell Stewart’s 3,928 shares of ImClone when it fell to $60 per share.
The other government witness who testified Tuesday was Daniel Lynch, acting CEO of ImClone, who told jurors about the mechanics of the company’s application for government approval of the drug Erbitux in 2001.
U.S. District Judge Miriam Goldman Cedarbaum ordered the trial suspended for Wednesday because of heavy snow forecast for the New York area.
Testimony was to resume Thursday – probably including Douglas Faneuil, a former Merrill assistant and the government’s star witness against Stewart and Bacanovic.
Faneuil is expected to testify that he passed the Waksal tip from Bacanovic to Stewart – testimony that, if jurors believe it, would poke holes in the Stewart-Bacanovic $60 agreement.
Lawyers for both defendants have already hinted they will attack Faneuil’s credibility, portraying him as a repeated liar who was willing to tell the government anything it wanted to hear in exchange for a plea deal.
Assistant U.S. Attorney Karen Patton Seymour said Stewart had sold ImClone on ”a secret tip” that no one else had, then told an avalanche of lies to save her reputation and enormous fortune.
And she said Bacanovic made sure that word of Waksal’s sale was passed along to Stewart.
”He knew he couldn’t do it,” she said. ”But he didn’t want his friend Martha Stewart sitting on a stock that was about to be obliterated by bad news.”
Stewart attorney Robert Morvillo suggested the government’s pursuit of the domestic style-setter was reminiscent of George Orwell’s Big Brother novel ”1984.”
He lashed out at Congress for leaking in the summer of 2002 that Waksal had directly tipped Stewart about the Erbitux decision, suggesting it was the work of politicians hungry for attention in the midterm election.
”Same government – leak it on one side, prosecute it on the other,” Morvillo said disdainfully. ”I think that George Orwell was just about 20 years too early,” he said, alluding to the novel ”1984” that described an all-intrusive government.
Morvillo never flatly denied that Stewart was tipped to the Waksal sale. But he described Stewart in December 2001 as weary from the holidays, and finally willing to follow Bacanovic’s repeated suggestions to get rid of ImClone.
He also said Stewart was telling the truth in an April 2002 interview with investigators in which she said she did not recall such a tip.
The prosecutor told jurors they would hear evidence that Stewart tried to pump up the stock of her own company, Martha Stewart Living Omnimedia, with false accounts of the ImClone investigation in 2002.
Seymour noted that the company depended on Stewart’s image, and that for every dollar the media company’s stock fell, Stewart stood to lose $30 million. Denying that she was tipped, Seymour said, was ”another pure and simple lie.”
”Martha Stewart was determined to put her own interests ahead of her own investors,” the prosecutor said. ”And so she lied over and over during a key period, to try to keep the price of MSLO from falling.”
Stewart faces up to 30 years in prison on charges that include obstruction of justice and securities fraud, but would get a far lighter penalty if convicted. Bacanovic is also charged with five counts and faces a maximum 25 years.