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Dueling portrayals of Stewart

Attorneys vie to sway panel on first day

NEW YORK -- Martha Stewart sold stock based on "a secret tip" that no one else had, then told an avalanche of lies to save her reputation and enormous fortune, a federal prosecutor said yesterday in laying out the case against the homemaking queen.

Stewart's attorney insisted the case was based on "speculation, surmise, and guesswork."

The jury of eight women and four men listened to three hours of opening statements that outlined starkly different portrayals of Stewart's sale of nearly 4,000 shares in the biotechnology company ImClone Systems on Dec. 27, 2001.

The government contends that Stewart, on her way to a vacation in Mexico, was tipped that ImClone founder Sam Waksal was trying to dump his own shares, then ordered her own shares sold.

Assistant US Attorney Karen Patton Seymour said Stewart then conspired with her stockbroker, Peter Bacanovic, to tell a series of coverup lies about the sale.

"The reason that Martha Stewart dumped her shares is because she was told a secret," Seymour said. "A secret tip that no other investors in ImClone had."

Stewart

faces up to 30 years in prison on charges that include obstruction of justice and securities fraud, but would likely get a far lighter penalty if convicted. Bacanovic is also charged with five counts and faces 25 years.

Attorneys for Stewart and Bacanovic aimed to convince jurors that the two defendants had done nothing out of the ordinary for a diligent broker and responsible client, arguing that they had decided six days before the ImClone sale to get rid of the stock if it fell to $60. Bacanovic knew it was against the policy of his firm, Merrill Lynch & Co., to pass information about one client's trades to another, Seymour said. But, the prosecutor said, he made sure word of Waksal's sale was passed along to Stewart.Stewart attorney Robert Morvillo pointed out that 7 million shares of rapidly falling ImClone were sold on the day Stewart sold hers. She avoided $45,673 in losses on the shares by selling before the bad news was made public. Bacanovic attorney Richard Strassberg said the broker made a paltry $450 on the sale. "They have rushed to judgment to bring a case against Ms. Stewart, and in that rush to judgment they have charged an innocent man," Strassberg said.

At one point, Morvillo banged his fist on the front rail of the jury box and said there was no record Stewart and Bacanovic had talked after the stock sale to discuss their supposedly cooked-up $60 story.

Morvillo's strategy was clear: The defense lawyer demonized Waksal, the federal government, and Douglas Faneuil, Bacanovic's former assistant who will be the star prosecution witness.

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 her ImClone holdings.

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 was "another pure and simple lie," Seymour said.

When testimony began yesterday afternoon, jurors heard from two prosecution witnesses. They included a Merrill Lynch official who discussed the firm's requirement that it keep its clients' transactions confidential. The other witness, acting ImClone CEO Daniel Lynch, briefly discussed the mechanics of the company's application for government approval of Erbitux. With parts of the New York area expected to get 10 inches or more of snow, Cedarbaum canceled today's proceedings. Testimony will resume tomorrow.

The government and defense statements offered a preview of Faneuil's testimony, which -- unless Stewart herself takes the stand -- is likely to be the most important of the trial.

Prosecutors' version is that Faneuil, young and impressionable, passed the tip about the Waksal sale from Bacanovic to Stewart, then was pressured by Bacanovic to support his version of Stewart's stock sale.

Both defense attorneys characterized Faneuil as a liar who is cooperating with the government to get out of his own prosecution.

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