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The testimony of the key witness in the Martha Stewartobstruction trial — broker’s assistant Douglas Faneuil — was postponedThursday after lawyers for Stewart and her broker, Peter Bacanovic,claimed that the government waited until the last minute to disclose damagingcomments by Faneuil’s former attorney. Documents turned over to defense lawyers late Wednesdaynight showed that Faneuil’s first attorney, Jeremiah Gutman, told an FBIagent that he was unsure whether it was ImClone chairman Samuel Waksal or Bacanovic who told Faneuil to advise Stewart to dump her shares ofImClone Systems Inc. on Dec. 27, 2001. But later in the same interview, Gutman clarified thatthe uncertainty over who tipped off Stewart was his own, and not that ofthe 28-year-old Faneuil, an assistant to Bacanovic at Merrill Lynch. Judge Miriam Goldman Cedarbaum said the government shouldhave provided the material earlier, and she granted the defense a one-weekdelay in the Faneuil testimony to investigate the matter. But Cedarbaum also indicated that the revelation,trumpeted by the defense as a serious breach of the prosecution’s disclosureobligations, was more of a mole hill than a mountain. “As a practical matter, no harm has yet been donebecause he has not yet testified,” Cedarbaum said after rejecting adefense motion for a mistrial. Lead prosecutor Karen Patton Seymour said the governmenthad done its duty under Brady v. Maryland, 373 U.S. 83 (1963), bydisclosing the name of Gutman before trial. She also said the government’sduty under United States v. Giglio, 405 U.S. 150 (1972), was met byproviding Gutman’s statement on the eve of Faneuil’s testimony. The credibility of Faneuil, who has pleaded guilty to amisdemeanor for not telling prosecutors the truth, is critical to thegovernment’s case against Stewart and her former broker at Merrill Lynch,who is accused of instructing Faneuil to warn Stewart. Stewart and Bacanovic are accused of conspiring toobstruct a government investigation and lying to cover up the reasons Stewart sold her shares. Stewart is also accused of securities fraud formisleading investors in her own company, Martha Stewart Living Omnimedia Inc.,about her ImClone sale. And Bacanovic is charged with perjury and tamperingwith a document to support their story that they had planned to sell ImCloneall along. Faneuil was on duty at Merrill Lynch on Dec. 27, whenWaksal’s family sold millions of dollars of Imclone shares, and Waksalattempted to sell millions more. The sales came just one day before the Foodand Drug Administration announced it was refusing to accept ImClone’sapplication for its anti-cancer drug Erbitux. Waksal has pleaded guilty toinsider trading and was sentenced to serve seven years in prison. Stewart’s attorney, Robert Morvillo of Morvillo,Abramowitz, Grand, Iason & Silberberg, said the government’s failure toprovide the Gutman statement until the eve of Faneuil’s testimony was”a clear violation” of the government’s disclosure duties and”part of a pattern” of government misconduct in the case. He also said the defense believed it was “quite likelythat Mr. Faneuil lied either to the government or to Mr. Gutman.” Gutman was later replaced as Faneuil’s attorney byMarc D. Powers of Reed Smith. Morvillo also continued his attack on FaneuilThursday, with Cedarbaum disclosing that the defense wants tocross-examine Faneuil about drug use. Seymour said she had ample case law supporting herposition under Brady. She also rebutted Morvillo’s claim that Bradyhad been violated because the government withheld the “substance” ofGutman’s statement knowing Gutman refused to be interviewed by thedefense. “Whether Mr. Gutman consented to an interview is not amatter for Brady,” she said, adding that the defense had the rightto subpoena Gutman to testify at the Stewart trial. But Cedarbaum, before dismissing the jury untilMonday, said, “I think the government’s reading is too narrow.” “You need to take a closer look and a more expansivelook at what is required because you are the custodians of the doctrine,”she said. Nonetheless, Cedarbaum doubted the defense had beenprejudiced by the late delivery. Over the protest of Bacanovic’s attorney,Richard Strassberg of Goodwin Procter, she said one week was more than enoughtime to probe the facts behind the Gutman statement. Seymour conceded there was some ambiguity in the Gutmanstatement and that it raised the issue of whether Waksal or a member of hisfamily told Faneuil to tell Stewart about the family’s ImClone sales. The government maintains it was Bacanovic whoinstructed that Stewart be warned. Even so, Seymour said, anyinformation showing that the warning came from Waksal would fall outsidethe ambit of Brady material because it would tend to inculpate, and notexculpate, Stewart. ‘BRADY’ AND ‘GIGLIO’ Generally, the Brady line of cases requires thegovernment to disclose evidence that is favorable to the accused if it ismaterial to guilt or punishment. That obligation extends under Giglio toevidence that might be used to impeach the credibility of a government witness. The timing of those obligations has recently been litigatedin the 2nd U.S. Circuit Court of Appeals. Generally, clearlyexculpatory material must be provided sooner rather than later, and impeachmentmaterial can be turned over closer to trial. One problem for the parties in the Stewart case is that thedistinction between Brady and Giglio has become blurred. The2nd Circuit, addressed this problem in United States v. Coppa,01-3031. There the circuit court said that the key questions to be asked inexamining disclosure controversies is whether the government suppressed theevidence either willfully or inadvertently, whether the evidence is favorableto the defendant, and whether “the failure to disclose this evidenceresulted in prejudice.” The 2nd Circuit in Coppa reversed an EasternDistrict judge who interpreted U.S. Supreme Court case law as requiringexculpatory or impeachment material be turned over “on the demand of theaccused,” meaning as soon as it is requested. Instead, in Coppa, Judge Jose Cabranes said, thematerial must be turned over “in time for its effective use.” That isthe standard Cedarbaum may have had in mind when she gave Strassberga remedy that fell far short of mistrial or even a lesser sanction: one week toinvestigate the matter.

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