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Attorney Robert Morvillo offered a rousing defense of Martha StewartTuesday, telling a jury she had no motive to lie to investigatorsprobing the reasons why she sold her stock in ImClone Systems Inc. In an opening statement that sounded like a closing argument, Morvillo said his client was the victim of overzealous prosecutors whoassumed Stewart lied when she said she planned to sell the sharesall along. Intent on making a case against Stewart, he said,prosecutors chose to believe only that she sold the stock because sheknew ImClone founder and family friend Samuel Waksal was unloadingmillions of his own family’s shares in the company. “This case is brought to you by the U.S. Department of Justice, headedby John Ashcroft,” Morvillo said as he prowled in front of the jurybox and ridiculed Congress for leaking erroneous information about Stewart and her co-defendant and former broker, Peter Bacanovic. “Same government,” Morvillo said, who at points slammed his openpalm on the bar in front of the jury box for emphasis. “Leak it on oneside, prosecute on the other. Same system. I think George Orwell was 20years too early.” Morvillo’s style was in direct contrast to the no-nonsense approachof top prosecutor Karen Patton Seymour. Seymour, the head of the Southern District’s Criminal Division,launched her opening statement without ceremony or even introductoryremarks, telling the panel of eight women and four men that the caseagainst Stewart and Bacanovic could have been avoided had thepair not conspired to save their skins and frustrate investigators. “The truth is what our nation’s investigators are entitled to hear,” Seymour said after outlining how the government would prove charges ofobstruction, false statements and securities fraud against Stewart,and obstruction, perjury and making and using a false document againstBacanovic. Seymour was friendly and unforced as she told the panel that thedefendants even “covered-up their cover-up” by denying they spoke bytelephone in advance of early sessions with the government — anassertion Seymour said “was another full and total lie.” Throughout, Stewart almost appeared to be grieving as she sat at thedefense table with a pained expression while the two sides gave theirradically different views of her behavior during an 18-monthinvestigation that received unprecedented media attention for awhite-collar crime. Bacanovic spent most of Seymour’s opening statement staringstraight ahead, and turned toward the jury only when defense attorneyRichard Strassberg began his statement talking about a “rush tojudgment.” Strassberg spoke intently as he told the jury that Bacanovictold investigators “exactly what happened,” and was rewarded by being”falsely accused.” GOVERNMENT WITNESS Strassberg then attacked the credibility of the government’s chiefwitness, Douglas Faneuil, the assistant to Bacanovic who claims thathe learned that the Waksal family was dumping millions of dollars ofImClone stock on Dec. 27, 2001, shared that information with Stewart, and then handled the sale of her own shares. Faneuil originally backed the story that Stewart was engaged intax-loss selling, and that she had an understanding with Bacanovicto consider selling her ImClone stock when it fell to $60 a share.However, by June 2002, Faneuil told the government that he hadinformed Stewart about the Waksal sale and began negotiating acooperation agreement. Strassberg, joined by fellow Goodwin Proctor attorneys David J.Apfel and Cheryl Brunetti at the defense table, ripped Faneuil forlying and then making a deal to plead guilty to a misdemeanor. Faneuil admitted accepting extra compensation from Bacanovic inreturn for not telling the government the truth about the stock sale,and he probably avoided prison time by agreeing to testify against thedefendants. Faneuil is expected to testify Thursday. Judge Miriam GoldmanCedarbaum canceled today’s proceedings ahead of an impending snowstorm. But Faneuil can expect to be vigorously attacked by Morvillo andhis team, John J. Tigue Jr. and Rebecca Monck of Morvillo, Abramowitz,Grand, Iason & Silberberg, and John R. Cuti of Emery Celli CutiBrinkerhoff & Abady. Morvillo never directly disputed that Stewart had learned thatthe Waksal family was selling when she spoke with Faneuil by cellphone from “the tarmac of an airport in San Antonio” on her way to aMexican vacation on Dec. 27, 2001. Instead, the veteran defense attorney worked to place the call in thecontext of both Bacanovic’s ongoing efforts to persuade Stewartto sell ImClone, and her sale of more than 50,000 shares of the stockfrom her pension plan two months earlier. Looking directly at the prosecutors with a trace of scorn in his voice,Morvillo told the jury the value of the almost 4,000 shares sold byStewart on Dec. 27 “represented less than 1 percent of her networth.” TWO TRIALS Having followed Strassberg, Morvillo also revealed the degree towhich the defenses of Stewart and Bacanovic will mesh during thetrial. Bacanovic, 41, had cited his co-defendant’s celebrity statuswhen he asked Cedarbaum for a separate trial twomonths ago. Bacanovic, Morvillo said, had helped Stewart sell the 50,000ImClone shares in October and, after his client shifted stock inaccounts she had with two other brokers into her Merrill account, wasurging her to sell the relatively small amount of ImClone stock, nearly4,000 shares, that came with those accounts. But despite the degree to which their defenses are now the same, Strassberg made a point of emphasizing that Bacanovic played no rolein the securities fraud charge against Stewart. “Even if we have two defendants here,” he said, “there is really twodifferent trials going on.” The securities fraud charge, which Morvillo said was “the mostbizarre in this universe,” is based on Stewart allegedly misleadinginvestors in her own company, Martha Stewart Living Omnimedia, byreleasing three public statements in June 2002 in which she said she andBacanovic had agreed ImClone should be sold at $60. Morvillo touched briefly on Stewart’s rise from a family oflittle means to her creation of a catering business that, by working “16hours a day,” she shaped into a business focusing on “flowers, fixtures,food and furniture that expanded into a successful multi-mediacorporation run predominantly by women with similar goals and ideals.”Stewart accomplished this feat, Morvillo said, by “devoting mosther life to improving the quality of life for others” through aperfectionist approach that has sometimes subjected her to ridicule. Seymour, with co-counsel Michael S. Schachter and William Burck ather side, entered the courtroom intent on portraying Stewart and Bacanovic as two people who believed they had broken the law andengineered a cover-up only because they had too much to lose. Bacanovic, she said, was “worried about losing his job” as one ofMerrill Lynch’s star brokers. And Stewart, she said, “had even more at stake — amultibillion-dollar business.” Seymour methodically worked through the major elements of thegovernment’s case, saying Stewart lied to investigators duringconversations in January and April 2002, and changed an entry on a phonelog at her office that revealed Bacanovic had called and said hebelieved ImClone was about to start trading downward. Stewart, she said, then had second thoughts, and instructed heradministrative aide, Ann Armstrong, to change the entry back to itsoriginal form. Bacanovic, she said, also lied to investigators and then altered aMerrill Lynch client worksheet when he entered the notation “$60″ tosupport his statement that he and Stewart had discussed selling thestock on Dec. 21. The notation stands out, she said, because the inkused for it was different from that found on the rest of the worksheet.And phone records, Seymour said, show that both lied when theydenied discussing the scheme in advance of planned conversations withinvestigators. SEPARATE ALLEGATIONS Morvillo later began working on a shorthand for the jury tounderstand the separate allegations that make up the case, calling thephone log alteration in the presence of Armstrong “the AnnieIncident,” and referring to Stewart and Bacanovic’s purportedtalk about ImClone on Dec. 21 as “the $60 conversation.” And Morvillo tried to counter Seymour by turning the issue ofphone records around. He said that the government, while trying to provea case with no direct evidence, has no records of any contact betweenStewart and Bacanovic between Dec. 21, 2001, and Jan. 7, 2002,the date when Bacanovic faced the government for the first time. Winning laughter from the audience in the 40 Foley Square courtroom ashe raised the prospect of communication by “carrier pigeon” or the useof the “Pony Express,” Morvillo said there were no e-mail,voice-mail or cell phone records to support the picture of twoco-conspirators scheming to delude the government. There was no way they were going “to concoct a story,” Morvillosaid, “unless it’s concoction by osmosis.”

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