New York, NY, Feb. 20--Just days after selling her ImClone Systems Inc. stock, Martha Stewart said she knew that ImClone Chief Executive Sam Waksal had been trying to dump his shares in the company, a close friend of Stewart testified Thursday.
The revelation by Mariana Pasternak, a friend of Stewart for more than 20 years, was perhaps the most damaging testimony yet against Stewart, who claims she sold the stock for an entirely different reason.
Pasternak said Stewart told her about the Waksal sale on Dec. 30, 2001, just three days after Stewart sold her 3,928 shares of ImClone. The pair were on a terrace at a Mexican resort where they were vacationing.
Pasternak said Stewart recalled Waksal "was selling or trying to sell his stock, that his daughter was selling or trying to sell his stock."
She said Stewart added, "Isn't it nice to have brokers who tell you those things?"
What Stewart knew about Waksal when she sold her stock goes to the heart of the government's case that the home-making magnate repeatedly lied to investigators in the ImClone probe.
Stewart told investigators she never recalled being tipped that Waksal was selling, and that she sold instead because she and her stockbroker had a pre-arranged agreement to sell Stewart's ImClone shares when they fell below a certain price.
Earlier Thursday, a forensics expert testified Thursday that Stewart's stockbroker used a different ink to make a notation on a worksheet of Stewart's stock sales.
Prosecutors contend broker Peter Bacanovic altered the document after he and Stewart hatched a false story that they had a standing arrangement to sell her ImClone Inc. stock when the price fell below $60.
Larry Stewart, who as the chief forensic scientist at the Secret Service is considered the nation's top expert on ink, testified that infrared and ultraviolet light tests confirmed differences between the blue ink used to make the "(at)60" entry and the blue ink used to make other marks on the sheet.
Prosecutors say Stewart actually sold ImClone because Bacanovic sent word to her that ImClone Chief Executive Sam Waksal was dumping his shares. Stewart and the broker are charged with repeatedly lying to investigators.
On the worksheet, Bacanovic made circles, check marks and other notations in blue ink on the document. The "(at)60" mark, also in blue ink, is underlined, and appears next to an entry for Stewart's 3,928 shares of ImClone.
Bacanovic claims he and Stewart struck the $60 agreement days before she sold her stock on Dec. 27, 2001. The next day, the government declined to review an ImClone cancer-fighting drug, sending the stock price into a sharp decline.
Lawyers for Bacanovic and Stewart are expected to argue that Bacanovic simply picked up a different pen to make the "(at)60" notation--not that he filled it in later to back up a cover story.
The ink expert's testimony gave a detective-novel aspect to a trial that, for four weeks, has dealt heavily in stock charts and arcane financial terms. Jurors saw photographs of infrared testing of Bacanovic's worksheet. Most marks on the sheet appeared black under infrared light, but the "(at)60" notation glowed white.
Mr. Stewart testified that ultraviolet-light and chromatography testing had confirmed the inks were distinct.
The testimony came as prosecutors neared the end of their case against Stewart and Bacanovic. They were expected to rest their case later Thursday or early Friday.
Stewart lawyer Robert Morvillo indicated to the judge that he still hasn't decided whether Stewart will take the stand. Morvillo also plans to ask the judge to dismiss the securities-fraud count against Stewart, which charges her with misleading investors in her own company, Martha Stewart Living Omnimedia, by claiming her ImClone sale had been proper.
Outside the jury's presence Thursday, U.S. District Judge Miriam Goldman Cedarbaum blocked the government from showing jurors that Stewart haggled over reimbursements from her company for haircuts, coffee and snacks.
Prosecutors wanted to raise the issue to head off assertions by the defense that the amount of money at stake in the ImClone Systems transaction was so small that Stewart wouldn't have focused closely on the sale. The ImClone sale amounted to less than $250,000. Stewart was once worth $1 billion.
The judge said she wouldn't allow testimony about Stewart's expenses because "there are too many things about it that lead down other roads."
"I think it's an elephant bringing forth a mouse," she said.
But the judge also blocked Morvillo from arguing in his closing statement that the ImClone sale was "too small for Ms. Stewart to focus on."
