Martha Defense Tries to Take Down Faneuil

Defense lawyers in the Martha Stewart (search) trial on Thursday cross-examined government star witness Douglas Faneuil (search) and sought to show that the young brokerage assistant may have been out to get Stewart.

Faneuil, who on Wednesday delivered damaging testimony against Stewart and her broker, Peter Bacanovic (search), testified that she had berated him at least twice and once even threatened to take her business elsewhere because she didn't like the telephone hold music.

Faneuil is the government's star witness against Stewart and Bacanovic, who are charged with repeatedly lying to investigators about why Stewart dumped her ImClone stock.

Stewart is accused of working with Bacanovic to obstruct justice and of deceiving investors in her own company, Martha Stewart Living Omnimedia.

Robert Morvillo, Stewart's lead lawyer, was expected to begin his own cross-examination of Faneuil on Monday. Court will not be in session Friday.

Faneuil has already testified that Bacanovic ordered him on Dec. 27, 2001, to pass a secret tip to Stewart that ImClone founder Sam Waksal was trying to dump his shares in the company.

The young assistant has also testified that Bacanovic -- without explicitly asking him to lie -- repeatedly pressured him to back up his and Stewart's assertion.

Faneuil, who handled the questionable stock trade at the heart of Stewart's trial, confirmed that he wrote e-mails to friends describing tirades by the homemaking queen.

In one e-mail on Oct. 23, 2001, after handling a call from Stewart at Merrill Lynch & Co. (MER), Faneuil told a friend: "I have never, ever been treated more rudely by a stranger in my life. She actually hung up on me!"

Three days later, he wrote to another friend: "Martha yelled at me again today, but I snapped in her face and she actually backed down! Baby put Ms. Martha in her place!!!"

Shown copies of the e-mails in court Thursday, Faneuil said: "I believe I wrote those words exactly."

The e-mails emerged under questioning by a lawyer for Bacanovic, who is accused of ordering Faneuil to give Stewart the tip that led her to dump all her ImClone Systems (IMCL) stock on Dec. 27, 2001.

Faneuil initially supported Stewart and Bacanovic's story that they had a deal to sell her ImClone shares at $60. But he later pleaded guilty to a misdemeanor for his part in the scheme and agreed to testify about Stewart's sale. Faneuil claims Bacanovic ordered him to tell Stewart the family of the ImClone founder was dumping his shares.

As the e-mails from Faneuil were flashed on a giant screen in the courtroom, Stewart maintained the same stoic expression she has held throughout the two-week-old trial. She did not speak to reporters as she left court.

Lawyers for Bacanovic have described Faneuil as "fixated" on Stewart while he worked at the brokerage, and were using the e-mails in hopes of convincing the jury he did not like Stewart.

Bacanovic lawyer David Apfel asked Faneuil whether it was true Stewart once said "something about how bad the hold music was. She told you she was going to leave Mr. Bacanovic and leave Merrill Lynch unless the hold music was changed."

Faneuil confirmed the account. Jurors broke up in laughter.

Earlier Thursday, Faneuil testified he covered up the stock sale because "I felt I would be fired if I didn't lie."

"Peter made it very clear to me that I was never to discuss the events of the 27th with anyone as I knew them to have occurred," he said, referring to the date when Stewart sold her shares.

But Apfel tried to introduce e-mails to show Faneuil and Bacanovic had a joking relationship at work for months after Stewart's stock sale.

One e-mail was a to-do list that Faneuil had prepared for his boss, on which he added that Bacanovic could call him any time with questions -- "but not too early, hee hee." Another referred Bacanovic to an article describing a man having sex with a goat.

But U.S. District Judge Miriam Goldman Cedarbaum refused to allow the e-mails into evidence, and instructed jurors not to consider what they had heard.

How the jury rates Faneuil's credibility is expected to be a critical component of how they judge whether Bacanovic and Stewart intended to break the law and lie to investigators.

On Wednesday morning, Faneuil delivered the most damaging testimony yet against Stewart, saying he had tipped her -- on Bacanovic's orders -- that Waksal was dumping his own ImClone shares.

"Peter thought you might like to act on the information that Sam is selling all of his shares," Faneuil said he told Stewart in the call.

"All of his shares?" Faneuil said Stewart answered.

Faneuil said Stewart asked him for a quote on ImClone stock, then declared: "I want to sell." Faneuil sold Stewart's shares immediately, at proceeds of more than $225,000.

The next day, the government released a negative report about an experimental ImClone cancer drug. The report sent ImClone shares down by nearly 20 percent. The government estimates Stewart saved $51,000 by getting out early.

Reuters and the Associated Press contributed to this report.