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Martha Stewart’s attorneys may be among the witnesses called to testify at her trial for obstruction of justice and securities fraud. Several people close to the case say the lawyers are “probable” witnesses at trial, if not during motions to dismiss in the case, because of the way the government’s insider-trading investigation unfolded and the wording used in the indictment. Among those who may be called are John F. Savarese and Lawrence B. Pedowitz of Wachtell, Lipton, Rosen & Katz, who represented Stewart during the early phases of the investigation and are still part of her legal team. The possibility that Savarese and Pedowitz, along with at least one other attorney, may be asked to testify also led members of Stewart’s legal team to recruit Robert G. Morvillo and John J. Tigue Jr. of Morvillo, Abramowitz, Grand, Iason & Silberberg one year ago, a source said. And while the defense team considers it probable that the government will call the lawyers to testify against Stewart, it is also possible the defense team would want to call them to the stand in support of her cause. Morvillo and Tigue were front and center at Stewart’s June 4 arraignment, where Morvillo issued a strongly worded statement condemning the prosecution’s motives in bringing a case based on an insider-trading coverup, but without charging insider trading. The nine-count indictment charging Stewart and Merrill Lynch financial adviser Peter Bacanovic accuses her of conspiracy to obstruct justice, making false statements, and in the most controversial count, securities fraud for deceiving investors in her company, Martha Stewart Living Omnimedia, by publicly stating she had a pre-arranged stop-loss order with Bacanovic to sell her shares of ImClone Systems Inc. if it dropped to $60 a share. In fact, prosecutors say, Stewart sold close to 4,000 shares of ImClone only after learning from Bacanovic’s assistant that ImClone CEO Samuel Waksal and his family were dumping tens of thousands of shares. Waksal was sentenced June 10 to 7 years and 3 months in prison for several crimes, including trading on insider knowledge that the company’s cancer-fighting drug Erbitux had hit a regulatory roadblock. The conspiracy, obstruction and false statement charges focus on Stewart’s actions as the Waksal investigation heated up. She spoke twice with prosecutors for Southern District of New York U.S. Attorney James B. Comey, FBI agents, and investigators with the Securities and Exchange Commission, which would go on to file civil insider-trading charges against her. The first meeting was face-to-face on Feb. 4, 2002, with Stewart’s lawyers present. The second was a phone interview on April 10, 2002, with the same federal authorities, again with her lawyers present. In both conversations, Stewart allegedly lied to federal officials about her reasons for selling the shares and whether or not she had spoken to Bacanovic. The indictment also accuses her of changing the phone log maintained by her assistant to remove the “substance” of a message that stated, “Peter Bacanovic thinks ImClone is going to start trading downward.” She allegedly changed the log to read “Peter Bacanovic re ImClone,” but later told her assistant to restore the original message. Pointedly, the indictment states that Stewart made the original change “after a lengthy conversation with her attorney” about the pending Feb. 4 interview. It is not clear whether that statement in the indictment was a shot at one of Stewart’s attorneys, or whether it was included merely to show that Stewart was well aware of the implications of her pending government interview. SECURITIES CHARGE The securities charge is based on public statements that she deceived investors in her own company about her role in the Waksal scandal. The first statement was on June 7, 2002, when the indictment says Stewart “caused her attorney in New York” to provide The Wall Street Journal with false and misleading information. The second was a press release elaborating on her supposed $60 stop-loss order, a statement in which she said she “did not have any nonpublic information regarding ImClone” when she sold the shares. The third was on June 18, 2002, when she took the same position in another public statement prepared for a conference of securities analysts and investors. In that statement, she insisted she had cooperated with the SEC and the U.S. Attorney “to the best of my ability.” Within two weeks of those statements, including the one issued through her attorney, Morvillo and Tigue were on board. One issue facing Stewart’s attorneys is the statement to The Wall Street Journal: If it was merely for public-relations purposes, it would not implicate the attorney-client privilege or the attorney work product doctrine, and Comey’s office would not be burdened with having to invoke the crime-fraud exception to them. The crime-fraud exception in general removes the privilege protecting attorney-client communications where an attorney is being used to commit the fraud or crime. The conversations between Stewart and the authorities on Feb. 4 and April 10, 2002, however, raise another issue. There are no official transcripts of those meetings, only notes taken by both sides. And since the representations that Stewart made to the government in the face-to-face meeting and the phone conversation are an important part of proving the conspiracy and obstruction charges, the two sides might present very different versions of what transpired. Here, it becomes possible that Morvillo and Tigue might elect to call Savarese or other attorneys to testify for Stewart, who would then waive the attorney-client privilege to her advantage. This would require Morvillo to weigh whether subjecting the other lawyers to cross-examination would be worth the advantage gained by having them support her version of events. Lawyers for both Stewart and the U.S. Attorney’s Office declined comment. Stewart is scheduled to return to court Thursday for a conference in the case.

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