NEW YORK – Moments before jury selection for the trial of Martha Stewart, her boyishly handsome stockbroker paused at the defense table, leaned in and exchanged kisses with her on the cheek.
The greeting seemed affirmation that Stewart's bond with her co-defendant, Peter Bacanovic (search), was still strong despite government accusations they lied about a well-timed stock trade.
But the case took an unexpected turn last week that could strain their unified defense.
The twist involved the government's star witness, former Bacanovic assistant Douglas Faneuil (search). He was expected to testify that Bacanovic instructed him to give Stewart a secret tip that led her to sell nearly 4,000 shares of ImClone Systems (IMCL) stock in 2001, just before it plummeted on bad news.
Stewart and Bacanovic — whose attorneys spent months together devising a defense strategy — say they had agreed beforehand to sell ImClone if the stock fell to $60 per share.
However, Bacanovic's attorney also has suggested Faneuil, star-struck by the domestic style-setter, decided on his own to tip Stewart about the stock's impending drop.
And Faneuil's testimony was delayed last Thursday by the surprise disclosure of an FBI interview with his former attorney. In a blow to prosecutors, transcripts of the interview suggest ImClone founder Sam Waksal (search) himself — not Bacanovic — might have asked Faneuil to tip Stewart.
Bacanovic's lawyers could use the document to subtly distance their client from Stewart while bolstering his defense, said Dan Small, a former federal prosecutor in Boston.
Bacanovic "doesn't want to help the government by pointing the finger at Martha Stewart," Small said. "But he also doesn't want to go down with the ship."
The stakes are high: Stewart is charged with obstruction of justice, securities fraud and other counts that carry a total of 30 years of prison time. Bacanovic faces up to 25 years if convicted of perjury, conspiracy and other charges.
While not exposed to the level of scrutiny aimed at Stewart, Bacanovic, 41, has seen his share of press, good and bad. Some portray him as a shallow social climber who sabotaged himself by lying to regulators, others as an honorable person with an intense devotion to friends and investors.
Bacanovic "has always been very social," a tireless worker with the rare ability to convert friends into clients, said his brother, Paul, an investment banker at Lehman Brothers (LEH).
Successful brokers "start work when they leave the office," he said. "That was especially true in my brother's case."
After a brief stint at ImClone's marketing department, Bacanovic joined Merrill Lynch (MER) in 1993. He became one of the firm's top-producing brokers, with a list of well-heeled clients who invested tens of millions of dollars with him.
"He's no lightweight," Paul Bacanovic said. "No one handed him any clients."
He was refined enough to fit in with his clients in high society settings, where he has been photographed smiling and mixing with Stewart. A bachelor, Bacanovic was known to sometimes escort older socialites to galas and cultural events — fodder for unflattering gossip items since his indictment.
Friends and family of Bacanovic have been quoted insisting his social acumen and relationship with Stewart have been overemphasized and distorted. They say his friendships run deep, but that his loyalty to Stewart was strictly about business.
Bacanovic — after purposely keeping a low profile in the months leading up to the trial — expects to clear his name and resume his career, his brother said.
"Everyone who knows him knows this is ridiculous," he said.